Knowledge Module 1 Learner Guide

SAQA 96368 Knowledge Module 1

41

Distance, Direction, Area: We can determine a lot of information from a map such as
distances, directions, and areas. We can measure the distance from Johannesburg to Durban,
determine that Pretoria is to the north of Johannesburg, or calculate the size of the Gauteng
province. In determining distances and areas the scale of the map has to be taken into
consideration. Directions are based on true north, but if you are using a magnetic compass
then it must be remembered that the compass needle points to magnetic north, which is
different from true north. The difference between magnetic north and true north is called
magnetic declination.

Different types of maps: Being a representation of the real world on a limited size of paper
means that a map is restricted as to what can be shown. The cartographer has to select what
to show and what to leave off. The cartographer is guided by what the main purpose of the
map is, such as a road map, a topographical map, or a thematic map.

41 https://geology.com/world/south-africa-satellite-image.shtml

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A road map emphasises the roads and towns but little else, while a topographic map, also
called a general map, shows as much of the landscape, elevations, roads, towns etc. as
possible. A thematic map is designed to depict a specific theme such as the population of
various magisterial districts, the occurrence of crime in different districts, or annual rainfall
etc.

The Importance of Maps to Freight Forwarders

Why is it important for freight forwarders to be able read maps?

Maps are an essential tool to any clearing and forwarding agent. If you walked into any freight
forwarder’s office, you will be almost sure to see at least one world map on the wall and at
least one Atlas on somebody’s bookshelf.

Maps assist freight forwarders in their performing some of their important roles by giving
them insight into the following:

Locality

Probably the most important thing about a map is that it tells us where a place is. Once we
have found a place on a map then we may know:

• The country, province and/or administrative district in which it is to be found.
• How far away from, or close it is to its nearest seaport or airport (if it is not of itself a

sea and/or airport).
• The locality of the place relative to major features such as mountains, mountain

ranges, rivers, or canals etc.
• How high that place is relative to sea level.
• How far from that place it is to the equator, the tropics or the North or South Pole

(which tells us something about the climate there).
• The time zone in which that place is situated (more about this later).

As we will see, each one of these pieces of information is vital when we need to move cargo
to or from the place which has been identified.

Determining distances

If you think about it, a map is a scale drawing of the whole earth (world map), a continent, a
country, a province, city, town or maybe just a suburb. The smaller the area covered by the
map, the smaller the scale.

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Scales, show the distance on the map compared to the distance on the ground. It is therefore
important to choose an appropriate map scale for the task you are undertaking.

Thus, a street map carried in a car may have a scale of 1:20 000 whilst a world map’s scale
will be in the order of 1: 90 000 000.

Common scales include:

• 1:30 000 000 (e.g., world map or atlas)
• 1:1 000 000 (e.g., country map)
• 1:50 000 (e.g., regional map)
• 1:10 000 (e.g., local map)

In this sense, a map scale of 1:50 000 means: 1mm on the map represents 50 000mm or 50m
or 0.05km on the ground.

It means that everyone unit of measurement on that map equals so many of the same units
of measurement on in reality or the actual world.

Thus, if we were looking at a world map with a scale of 1: 90 000 000, each centimetre on the
map will equal 90 000 000 centimetres (or 900 kilometres) on the actual earth’s surface.

Some maps which have scales with large numbers (e.g., 35 million) produce maps covering a
large area in little detail.

42

In contrast, on a 1:50 000 map, individual buildings, minor roads, and contours are evident.

42 https://www.cia.gov/library/publications/the-world-factbook/docs/refmaps.html

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43

44

Port of Durban, South Africa

43 Google Maps
44 Bing Maps

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45

This tells us that is that if a map has a scale, we can (if we know how) use it to calculate
distances between points on the earth’s surface.

Much of the forwarder’s work revolves around making sure that goods are safely and
timeously moved from one point on the earth’s surface to another. Think about the distance
between two points on the earth’s surface. The longer the distance between those two
points, the more time will be needed to travel between them, the more fuel will be needed
and therefore the cost of moving goods between the two points will increase as the distance
between them increases (all other things being equal).

Forwarders need to be able to measure the distances between places so that they can have
an idea of the length of time it will take to move goods from one place to another by the
different modes of transport.

From a forwarding point of view, it is also generally true to say that the further apart two
places are, the more complex the planning and execution of cargo movement between those
points will be.

45 © Crown Copyright/database right 2014. An Ordnance Survey/EDINA supplied service.

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So, without maps and the ability to use them, forwarding would be really an impossible task.
Currently, there is an ever-increasing usage of free online maps and geographical
programmes such as Google Maps and Google Earth. These are invaluable tools, and it is well
worth while learning how to use them.
Examples of Symbols on Maps
So how does one know what all the symbols on a map mean?
On every good map, there is a key. A map key is a list of words, phrases, or colours -- usually
within a box in the corner of the map that explains the symbols that that are found on the
map itself. A map key is also referred to as a legend.
In looking at various maps you have possibly asked yourself why it is that most maps have
horizontal and vertical lines (which on some maps are straight lines, others curved).
See below extract/example from the NGI website:46
What can I find on a map?
A topographical map shows natural, and human made features on the Earth's surface and
added to this are names and boundaries of importance. The features or objects are
represented on the map as symbols in different colours as point symbols, lines, and areas.
The cartographer uses different colours and symbols for each type of object in a way that will
make it easy for the map user to identify. Below are examples of what can be found on a 1:50
000 topographical map with the standard symbols: Road:

National freeway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

National route . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Arterial route . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Main road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secondary road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Railway (showing a station) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
River: Perennial (has water all year) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non perennial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

46 http://www.ngi.gov.za/index.php/what-we-do/maps-and-geospatial-information/38-maps-and-charts-
digital-raster-or-printed

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Dam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pan: Perennial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non perennial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Powerline (major lines only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spot height (elevation at a point) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trigonometrical Beacon (with beacon number) . . . . . . . . . . . . . . . . . . . . . .
Built up area (High and Low density) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Residential, commercial, and industrial) Building (of significance or
isolated) . . . . . . . . . .
Bridge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cultivated Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Row of trees (where of significance) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wind pump . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communication tower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eroded area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sandy area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boundary: International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provincial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cadastral farm (original farm) . . . . . . . . . . . . . . . . . . .
Protected Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Names of towns, rivers, mountains, major dams, and other geographical areas

Geography, in the context of international trade, transport and economics, will be covered in
greater details further along this course.

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Topic 1.8: Management principles of loss and damage of goods [KT0108]

Introduction

Goods being transported internationally are under the constant threat of lost or damaged,
stolen, pilfered, sent to an unplanned destination, loaded into the wrong container, placed
on an incorrect vessel, or merely left behind.

Damage may occur because of poor or inadequate packaging, careless or irresponsible
handling, or accidents involving the carrying vehicle.

The misdirection or the incorrect loading of goods may result from insufficient marking and
labelling, or mistakes made by container depot staff or stevedores.

Goods may be stolen because of lax security arrangements, or the increasingly sophisticated
methods used by thieves, especially those used by organised crime syndicates.

Whatever the precautions taken to avoid these discrepancies, importers and exporters are
faced with the risk of cargo loss or cargo damage.

The risk of suffering cargoloss or damage canbe reduced by ensuring that the packaging used
is sufficient to withstand the type of transport selected. For example, cargo transported by
rail generally will be subject to rougher handling than cargo transported by road.

Wooden packaging is likely to prevent pilferage more than fibreboard is. The use of
appropriate labels such as “fragile” and “this side up” can help to encourage careful handling
but are no safeguard against damage.

It is important that details such as the consignee’s address and port of destination are
correctly marked on the external packaging to facilitate the identification and selection of the
goods at the time of loading.

Protection against the financial risks associated with cargo damage and loss is available in the
form of cargo insurance. Once loss or damage has occurred, certain essential steps have to
be taken in order to protect the interests of the cargo owner and other participants in the
international transport chain.

(Note: In this learning material, the meaning of “packaging” is takento be the material used
for making packages – for example, plastic drums. “Packing” is used to describe the “act”
or “process” of putting into packs – for example, placing cans of food into fibreboard
cartons).

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Managing the Risk of Loss or Damage of Cargo

Importers and exporters are constantly exposed to the cargo risks associated with
international transport.

According to TT Club statistics indicate that as much as 66% of incidents related to cargo
damage in the intermodal supply chain can be attributed in part to poor practice in the overall
packing process, including not just load distribution and cargosecuring, but also the workflow
from classification and documentation through to declaration and effective data transfer.

These incidents are estimated to cost marine aviation & transport insurers in excess of
USD500 million each year, alongside the major casualties, such as ‘MSC Flaminia’ (July 2012)
or ‘Maersk Honam’ (March 2018). Overall economic losses are calculated to be many times
this; supply chain stakeholders are collectively bearing a significant, largely avoidable
burden.47

The loss of goods through damage or other means can have a material effect on the well -
being of a business. A contract may be lost, the support of a customer may be jeopar dised,
contractual obligations may result in penalties, or a production line may fall back on essential
output. Any one of these factors could place a company in financial difficulty.

Cargo insurance is one way of providing protection against risks which can arise from the
many hazards encountered in the movement of goods between countries.

Cargo Insurance Claims

The main reason for taking out cargoinsurance is to receive compensation in the event of loss
or damage to goods. This is usually in monetary form or repair and/or replacement of the
goods in question, depending on various factors.

To obtain compensation from the insurance company a claim has to be submitted.

A claim is simply a written notice, principally to the underwriters, that loss or damage has
occurred.

A claim sets out:

• the circumstances resulting in the loss or damage,
• a description and quantification of the loss or damage, and
• the monetary pay-out or compensation expected.

The principles of insurance against loss or damage will be further covered in greater detail
further on in the course.

47 https://www.ttclub.com/products-and-services/loss-prevention/cargo-integrity/

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Topic 1.9: Fundamentals of international purchasing [KT0109]

Having introduced the fundamentals of freight forwarding above, it is important to note that
one of the key drivers of movement of cargo across borders, is the fact that there is someone
or some entity somewhere which decides to source, acquire/obtain, procure, or purchase
goods across international boundaries.

Thus, considering all the complexities associated with ‘international purchasing’, i.e.,
procuring goods across areas vastly dispersed in geographical terms (distance), with different
cultural contexts and legal frameworks etc., it is clear that this function has to be executed
satisfactorily both strategically and operationally.

This process is therefore a core component of the overarching framework the ‘Supply Chain
Management’, of which freight forwarding is also another relevant and key subset, or cog on
the wheel. Thus, in order to understand the fundamentals of international purchasing, it is
important to understand how this fits into supply chain management in general.

In its most basic sense, obtaining supplies to the organisation’s requirements is essentially a
procurement and/or sourcing function.

Most organisations use terms like ‘Sourcing’ and ‘Procurement’ interchangeably, yet the
fundamentals of supply chain regard these as separate processes.48

Sourcing is often defined as the outcome of management decisions to improve the bottom
line (i.e., reduce logistics spend by 5% in the next three years), whereas Procurement refers
to streamlining business processes and the tools available to action the sourcing decision in
place.

The following are the main differences between sourcing and procurement:

Sourcing:

• Precedes procurement and is often the qualifier for procurement activities.
• Sourcing is strategic in nature as it involves:

▪ Finding new suppliers
▪ Getting Request for Quotes (RFQs) for the best possible price for rawmaterials,

consumables and other supplies of goods or services.

48 https://www.absoft.co.uk/blog-article/sourcing-procurement-what-is-available-in-sap

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• Sourcing helps evaluating suppliers.
• Sourcing activities involve:

o Getting RFQs for new products
o Obtaining vendor information
o Uploading the vendor information into the system
o Minimum order quantity
o Standard packing quantity
o Lead time
o Pricing

• These activities could be one time or frequent depending on the size and nature of
the business, it also involves capturing price changes and other factors that may affect
a business process of a given company in the system.

Procurement:

• Follows sourcing.
• It is operational in nature as it is a frequent process of:

▪ Placing a purchase order (PO) with a supplier
▪ Getting confirmation of the order
▪ Follow up with the supplier until receipt of delivery.

• Involves invoicing when Accounts Payable is not a separate business function.

Typical Sourcing Flow > > >

Develop Determine Build RFx Identifiying Roll out and Analysis and Supplier Pricing and
Sourcing sourcing materials suppliers collect bid info awarding of bid selection and policy
pipeline strategy qualification
implementation

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Typical Procurement Flow > > >

Request a Create a PO, Goods Receipt Invoice
product or Approve/Release Settelement

service

The five rights of supply chain

5

Risk is something that is inherently present throughout the supply chain. As such, all risks
must be properly identified, mitigated against, and managed.

The proper execution of certain supply chain management functions such as procurement
and/or sourcing must therefore be conducted under the ‘right’ framework or set of guiding
principles in order to optimise the efficiency of the supply chain.

In general, there are five fundamental ‘rights’ under which supply chain transactions
particularly in the procurement space are executed. The five rights are sometimes covered in
procurement literature as ‘key performance variables’ or ‘procurement factors.49

49 Abouzied E, The Five Rights of Procurement, https://procure-web.com/the-five-rights-of-procurement/

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These Five Rights are: 50

1. The ‘Right Quality’

A company must purchase goods that are of satisfactory quality and fit for purpose.
They must be suited to internal and external customer needs.
This is attained through:

• Getting accurate specifications of product requirements and quality standards.
• Supplier-side and buyer-side quality management. A good working

relationship between buyer and supplier is crucial and the development and
maintenance of these relationships is crucial.51 The relationship between
buyer and supplier is, however, often a constant tug-of-war by both sides.
Suppliers may complain that buyers give short notice on orders while buyers
may on the other hand complain that suppliers do not deliver the orders on
time or that the quality of the product is no correct. The truth is that both sides
need each other, and the management of these relationships is key to good
business practice.

Implications of the ‘right quality’ not being achieved could mean that:

• Stock may have to be rejected or scrapped. This would be dependent on the
extent to which the product varies from the requested quality.

• Production machinery could be damaged where the product has to be
manufactured to specific specifications and cheaper materials are used.

• Finished products could be defective and must be scrapped or re-worked.
• If the defective products reach the customer, this could result in recalls,

returns, compensation claims, lost goodwill and damaged of the company’s
reputation.
• The firm will incur unnecessary costs decreasing profitability.

2. In the ‘Right Quantity’

This implies obtaining goods in sufficient quantity to meet demand and maintain
service levels while minimising excess stock holding as this leads to incurring costs and
risks.

50 Chong R, The Five Rights of Procurement, https://www.sitespade.com/single-post/2017/01/05/The-Five-

Rights-of-Procurement: Abouzied E, ibid.
51 RBW Logistics, The 4 biggest challenges in managing supplier- buyer relationships,

http://blog.rbwlogistics.com/4 -challe nges-with-bal ancing-the -buyer -supplie r -relationship-and- tips-t o-
overcome

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This is attained through:

• Demand forecasting - This is the process of predicting the future demand for
the firm’s product (or services) and is made up of a series of steps that involve
the anticipation of demand for a product in future under both controllable and
non-controllable factors.52

• Inventory management - This is the management of inventory and stock. It
includes aspects such as controlling and overseeing ordering inventory,
storage of inventory, and controlling the amount of product for sale.53

• Stock replenishment systems - Inventory replenishment or stock
replenishment is the process of inventory moving from reserve storage to
primary storage, then onto picking locations. Inventory replenishment is
sometimes used to define both ready-to-sell inventory as well as raw materials
received from suppliers.54 To ensure that they have the correct stocks on hand,
it is important that firms have a proper inventory replenishment system.

Implications of the ‘right quantity’ not being achieved could mean that:

• There could be insufficient stock being held which could lead to failure to meet
demand.

• There could be stockouts which may cause bottlenecks or shutdowns in
production; costs of idle time; late delivery to customers, lost credibility,
goodwill, and sales.

• There could be excess stock which may tie up capital in ‘idle’ stock. This would
result in a wasting of storage space. The risk of stock deterioration or perishing,
theft or damage, obsolescence, or disuse, would increase. Firms will also incur
holding costs.

3. At the ‘Right Place’

The delivery of goods has to be made at the correct delivery point. Goods must also
be packaged and transported in such a way as to secure their safe arrival in good
condition.
This is attained through:

• Distribution and transport planning - This is a systematic approach which
ensures that the process around the delivery of goods to different distribution
centres is done properly. Planners are constantly aware of which goods are to
be supplied in what quantity and at what location in the desired time.55
Planners consider demand trends over the years, accounting for seasonal
variations and also the anticipated demand according to the current year’s
prediction.

52 Business Jargons, Demand Forecasting, https://businessjargons.com/demand-forecasting.html
53 Trade Gecko, What is inventory management? https://www.tradegecko.com/learning-center/what-is-inventory-

management

54 Glynn F, What is Inventory replenishment? https://6river.com/what-is-inventory-replenishment
55 MBA sk. Definition, Distribution planning, https://www.mbaskool.com/business-concepts/operations-logistics-supply-

chain-terms/15951-distribution-planning.html

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Where distribution planning is done correctly, it increases efficiency. Goods shortages
will be minimised as demand is accounted for during the time of distribution and costs
of ordering, transporting, and holding goods is also reduced considerably.

Implications of the ‘right place’ not being achieved in terms of delivery could mean
that:

• When goods are delivered to the wrong place, delays emerge, and correction
costs are incurred.

• Products will be subject to unnecessary transport and handling (and related
costs).

• Extended handling and transportation increase the risk of damage,
contamination, or theft in transit.

• Transport may cause unnecessary environmental damage.

4. At the ‘Right Time’

Goods must be delivered at the right time in order to meet demand, but also not too
early as to lead to the incurring of unnecessary inventory costs. This for example is
tied into ‘Just-In-Time’ (JIT) and ‘Just-In-Sequence’ (JIT) delivery systems and is
secured through:

• Demand management - Demand management within supply chain
management is an over-arching, cross-functional process that ranges from
market sensing and sizing, understanding customers, forecasting, and
influencing demand (sometimes called demand shaping, which includes
pricing and promotions), to supplier forecasting to demand capture to
analytics.”56

• Supplier management - Because organisations are under pressure to find the
most profitable ways to bring products to market, they increasingly rely on
third parties and outsourced relationships. It is important that they have a
highly collaborative working relationship with their suppliers. Visibility into an
organisations suppliers’ business processes that impact its customers is
fundamental to that business’ success.57 The management of these
collaborations is supplier management and is part of the broader aspects of
integrated supply chains.

Implications of the ‘right time’ not being achieved could mean that:

• Goods may be delivered too late thus leading to production bottlenecks and
associated costs. This could lead to delays in delivery to customers, depending
on the nature of the product and the stage of delayed production.

• Where goods are too early, this could lead to undue risks and increased costs
of holding inventory.

56 Teck target, what is the true definition of demand management, https://searcherp.techtarget.com/answer/Whats-
the-true-definition-of-demand-management

57 Viewlocity, Supplier Management, http://www.viewlocity.com/solutions/supplier-management.htm

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5. At the ‘Right Price’

All of the above ‘rights’ should be secured at a price which is reasonable, fair,
competitive and affordable. Procurement costs can be minimised, and profits can be
maximised, through:

• Price analysis - This is the evaluation of bid prices through: 58
i. comparing submitted bids or quotations,
ii. comparing current quotations with previous quotations for the same
or similar items,
iii. comparison with own cost estimates, and (4) the use of standard
measures.

• Supplier cost analysis - This is analysis of the supply chain activities, mainly on
the supply side, by procurement personnel will reveal in some cases process
delays, repetition of work processes, redundancies and or waste. 59

• Competitive pricing and negotiation – Suppliers are often open to and willing
to negotiate their pricing in a manner that leads to win-win situations because
the well-being and sustainability of their customers ids often tied to theirs.
Furthermore, when issues have been identified from a supplier cost analysis
exercise, they can accordingly be taken up with suppliers and more
appropriate pricing levels can be negotiated.

Implications of the ‘right price’ not being achieved could mean that:

• Suppliers are free to charge what they like, without checking.
• Alternatively, supplier’s profit margins will be unfairly reduced, leading to

insecurity of supply.
• Materials and supply costs will rise.
• Profits may decline. Thus, in order to mitigate the loss of revenue or profits,

prices charged to customers will have to rise, which in turn may lead to lost
sales.
• Falling profit margins are a disincentive to shareholders and discourage re-
investment in the business.

These ‘rights’ are both simple and critical to the successful operations of any entity. Each right
requires serious market research and insight, knowledge and understanding of one’s target
market, product, competitors, and supply chain. It is also a criterion, against which a
procurement function is measured, and an acid test, of whether it makes meaningful
contributions to an organisation.

The true meaning of these ‘Five Rights’ differs from industry to industry. Because of the
general description of these rights a blanket meaning has been given to the ‘Five Rights’
throughout all spheres of industry. They are called the ‘Five Rights’ for ease of reference.

58 Business Dictionary, http://www.businessdictionary.com/definition/price-analysis.html
59 LinkedIn, Nyika C, Strategic cost analysis in procurement, https://www.linkedin.com/pulse/strategic-cost-

analysis-procurement-charles-nyika

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These rights do not negate the value that can be derived from an efficient supply chain. The
‘right’ individual makes the ‘Five Rights’ come alive and makes a difference between the
success and failure of a supply chain.

The rights individual(s), partners, and service providers can therefore be the differentiating
factor that makes the most important value proposition to any organisation’s supply chain.
They help remove elements of risk from the supply chain.

Clearing and forwarding agents, thus play a very crucial role in enabling their customers to
get the five ‘Rs’ right. Through their service offerings and global networks, they can optimise
quality, quantity, place, time, and price for their clients.

Topic 1.10: Fundamentals of international trade (import and export)
transactions [KT0110]

If there is an international purchaser in a global transaction, there correspondingly must be
an international seller. In such instances, the buyer is usually the importer, and the seller is
usually the exporter.

Before any of these parties formally transact by way of exchanging goods and payment (or
any agreed consideration), it is standard practice that they enter into some form of
agreement. In international trade, this type of agreement is known as a commercial contr act.

Contracts are so much a part of living in a society that you are probably unaware of how many
contracts you make every day. In the broadest sense, a contract is simply an agreement that
defines a relationship between one or more parties. Two people exchanging wedding vows
enter into a contract of marriage; a person who has a child contracts to nurture and support
that child; shoppers selecting food in a market contract to purchase the goods for a stated
amount. A commercial contract, in simplest terms, is merely an agreement made by two or
more parties for the purpose of transacting business.

Any contract may be oral or written. Written terms may be recorded in a simple
memorandum, certificate, or receipt. Because a contractual relationship is made between
two or more parties who have potentially adverse interests, the contract terms are usually
supplemented and restricted by laws that serve to protect the parties and to define specific
relationships between them in the event that provisions are indefinite, ambiguous, or even
missing.

When one party enters into a commercial contract with an unfamiliar and distant party across
a country border, a contract takes on added significance. The creation of an international
contract is a more complex process than the formation of a contract between parties from
the same country and culture. In a cross-border transaction, the parties usually do not meet
face-to-face, they have different societal values and practices, and the laws to which they are
subject are imposed by different governments with distinct legal systems.

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These factors can easily lead to misunderstandings, and therefore the contracting parties
should define their mutual understanding in contractual, and preferably written, terms. (Karla
C. Shippey, 2009)

Key Issues in International Sales Contracts

There are many issues that need concern only one of the parties to a sales transaction, but a
number of key issues must be taken into account by both parties. At first glance, the key issues
may seem relevant to one party or the other only. However, the success of the entire
transaction, as well as the profit for both parties, tend to hinge on these key issues. Regardless
of whether you are the buyer or the seller, you must at the least become aware of export and
import requirements, international payment methods, foreign exchange rules, intellectual
property rights, and choice of governing law and jurisdiction.

Export Issues

When entering into a cross-border transaction, both parties must consider the issues related
to exporting. These issues do not arise in purely domestic contracts and therefore are
probably unfamiliar, especially to the first-time exporter. A party who has no understanding
of these issues may well find that performance of the contract is impossible, or
disadvantageous at best. Rather than renegotiate the terms of your contract later, you should
take export issues into account up front.

Adaptations to Importing Country

The first issue to consider when exporting is whether your products will be acceptable in the
foreign market. Before a product can be considered ready for export, the seller will have to
ensure that the product is adapted for the market of the importing country. The costs of
adaptation, whether to meet cultural preferences or regulatory laws, typically fall on the
seller because a buyer is unlikely to make a deal unless the products can be used or sold in
the buyer’s country. Your contract may need to cover one or more of the following points.

• Compliance with Laws

Which party is obligated to adapt the goods such that they are in compliance with
consumer laws, any other quality standard regulations, and environmental laws of the
importing country?

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The seller often agrees to provide goods that comply with the laws and regulations of
the importing country so that the seller can ensure that the same standards of quality
are maintained when the goods are adapted. However, if the seller is unfamiliar with
the requirements, the contract may require the buyer to supply specifications
sufficient to meet the requirements. If alterations are minimal, such as the addition of
labels or stamps, the buyer may agree to make the changes because the cost is minor,
and the seller can then ship immediately.

• Market Adaptations

Which party is obligated to adapt the goods to allow for local languages, cultural, or
religious preferences; climatic differences; preferences for metric measurements;
differences in electrical, water, wire, telephone, and other systems; and variations in
the standard of living of the consumers?

The same considerations apply to adaptations of the goods to account for cultural,
societal, and economic conditions as for government requirements. If the buyer will
be allowed to adapt the products, what protections will the seller have for its rights in
patents, designs, trademarks, trade names, and other similar intellectual property
associated with the products?

To the extent that the buyer is permitted to alter goods for sale in the importing
country, the contract should expressly protect the seller’s intellectual property rights.
The fact that the contract permits alteration of the goods, packaging, or labelling by
the buyer could be deemed a waiver of the right to exclusive ownership and use of
the seller’s intellectual property rights.

• Warranties

Will customer service or warranties be provided, and if so, how will reliable service be
ensured?

Customer service and warranties are significant aspects of contracts. Whether selling
high-tech machinery or consumer appliances, customer goodwill will be greatly
enhanced if customer service is offered, but only so long as it is helpful to the
customer. The contract should specify the extent to which warranties and customer
service are available. If these benefits are to be provided through the buyer as a local
representative for the seller in the importing country, the contract should further
specify the standards to be met and other requirements for the protection of the
seller’s goodwill in the products.

Government Regulations of Exporting Country

It is wise to research the government requirements for exporting before formalising the
contract. The requirements will vary depending on the goods being exported, and you can
simplify your contract terms if you provide for the requirements specific to the goods being
exported.

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Many goods canbe freely exported, others are subject to minimal regulation, while still others
can be exported only if considerable restrictions are met. Some goods cannot be exported at
all, and therefore a contract to export them will be impossible to perform and will be
considered void or voidable.

As a contracting party, you need to know who will be responsible for complying with the
government requirements for exporting the products from the seller’s country. Your contract
should identify whether you or the other party will be responsible for compliance and for the
payment of costs. Depending on what your preliminary research has revealed, the terms of
your contract should cover the following issues.

• License Procurement

Which party will procure any necessary export licenses?

Typically, the seller is given this responsibility because the seller is likely to be the most
familiar with the export requirements of their own country. However, the buyer may
need to assist if the seller is unsophisticated or is financially unable to pr ocure an
export license.

• License Costs

Which party will pay for the export license?

If the export license is a one-time deal and must be obtained for each shipment
exported, the cost of the license is usually negotiable between the parties. One party
may agree to pay the cost as an incentive toward the foreign purchase. As another
alternative, the parties may agree to share the cost. If the export license can be reused
for more than one shipment, the cost is usually borne by the seller who will benefit
from the reuse.

• Compliance With Export Restrictions

If the goods are subject to export restrictions—including packaging, labelling, marking,
quarantine, fumigation, other pest control treatments, or inspections—which party
will be responsible for making the arrangements?

The seller is usually responsible for arranging compliance with export restrictions or
inspections because the seller is more familiar withthe requirements, and compliance
will often need the seller’s cooperation in making the goods available.

• Costs of Complying with Export Restrictions

Which party will be obligated to pay the costs of complying with export restrictions or
inspections?

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There is no hard rule as to which party will pay the compliance costs. It is negotiable.
If the export and import costs are comparable, the seller may pay for exporting and
the buyer may pay for importing. If these costs are imbalanced, the parties may
consider totalling the costs and splitting them. As another option, one party may pay
all of the costs as part of the incentive for making the deal.

• Export Fees and Taxes

Which party will be obligated to pay export duties or other government-imposed fees
or taxes for exporting?

Again, there is no “typical” arrangement for payment. The same considerations apply
for these exporting costs as for the costs of complying with export restrictions or
inspections.

Risk of delay of Failure

An extremely important export issue that is often neglected in international contracts is the
risk involved if export requirements are not met, whether timely or at all. Both parties are at
risk if the export fails—the seller may have to absorb costs for in preparing the goods for
export, shipment, and sale overseas, and the buyer may have to assume amounts spent in
presale promotion, importing, and receiving arrangements, and consumer sale compliance,
unless the buyer can obtain replacement goods, often at additional cost. If the export is
delayed, both parties are likely to incur additional labour, storage, shipping, and other costs.

The issue of failure or delay in exporting is made more complex by the question of fault. Did
the seller use the wrong labels? Did the buyer change the order just before shipment? Was
the failure or delay caused by factors beyond the control of either party? In international
contracts, there is a significant political risk involved. Governments and economies are
intertwined, and the right to export is therefore dependent on the relationships between the
governments of the exporting and importing countries. Your contract should anticipate the
risks involved and should establish the rights and obligations of the parties accordingly. Be
sure to consider provisions for the following issues.

• Timeliness

What is considered a “timely” export?

Your contract should provide a time for export or a means for determining that time.
If no time is provided, a reasonable time may be implied, but “reasonableness” is a
subjective standard that may result in a dispute because one party is dissatisfied with
the other’s choice of a “reasonable” time. Moreover, if a reasonable time is implied
by a court, both parties may be dissatisfied by the court’s opinion of reasonableness.

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• Default

If failure or delay in exporting is caused by one party, what will be that party’s
obligations and what will be the other party’s rights?

Most contracts take a hard approach to a failure or delay in exporting caused by one
party: it is usually a ground for termination of the contract, and the party at fault owes
damages, actual or liquidated, to the other party. The hard approach may be softened
a bit by requiring the party not at fault to mitigate the damages by taking reasonable
steps, such as by diligently seeking a replacement sale or purchase. Assuming that the
parties would rather complete the sale than negate the transaction, most contracts
also give the party at fault a short extension of time within which to rectify the
problem and to complete the contract, perhaps with a comparable allowance for costs
caused by the delay.

• Government Interference

What will be the rights and obligations of the parties if, before the goods clear
customs, there is a sudden change in export laws such that performance of the
contract becomes overly burdensome on one party or impossible?

The effect of uncontrollable factors is commonly covered in a contract provision
known as a force majeure clause. However, a force majeure clause usually provides
for termination of the contract if performance becomes impossible because of natural
catastrophise. If man-made events cause performance to become more burdensome
(for example because export duties are imposed or increased) or impossible but only
for an unknown time (for example, because trade sanctions are imposed by the
government), the parties may still want to complete the contract—in which event they
should provide for renegotiation or termination only if export remains impossible
after a certain period has elapsed.

Import Issues

All countries process imports, and the requirements vary from country to country.
International traders must consider the import process as part of their transaction. Before
goods can pass through customs, a trader will probably need to file proof of source and
destination, to complete entry certificates and other forms, and to satisfy local customs
officials that the goods meet the regulatory laws of the importing country.

The trader may also have to pay fees and taxes. If international traders fail to understand and
account for importing issues, they may well find that performance of the contract is
impossible or disadvantageous at best. It is best to cover import issues in your initial contract,
so you do not have to renegotiate and amend the contract later.

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Government Regulations of Imports

Most countries regulate their imports more rigorously than their exports. The encouragement
of imports will indirectly improve a country’s economy by vitalising the economies of other
countries, which in turn can lead to increased demand for exports among all countries.
Countries tend to be more concerned with the direct impact of imports on their domestic
economy. Regulation of imports is considered an essential means of protecting domestic
industries from destruction by sales of more competitive foreign-made products and of
ensuring that more revenue from exports is flowing into the country than is flowing out from
imports.

Your contract may contain a vague clause requiring one party to comply with all import
requirements, but you may find that the burden imposed on a party by such a clause far
outweighs the benefit of the contract. Therefore, it is advisable to determine in advance of
making the contract exactly what import regulations will be applicable to the specific goods
you are trading. If import regulations are minimal, a vague clause may suffice. However, if
there are heavy import restrictions, the cross-border sale may be feasible only if the parties
negotiate to share the burden of compliance.

Both the buyer and seller should verify that the contract clearly expresses their intentions
with respect to compliance with import requirements. Your contract should identify which
party must meet the import regulations and which will pay the duties, taxes, fees, and other
costs involved. The terms of your contract should reflect your research into the import
requirements for the goods that you are selling or buying. You should consider terms to cover
the following issues.

• License Procurement

Which party will procure any necessary import licenses?

Typically, the buyer is responsible because the buyer is likely to be the most familiar
with the import requirements of their own country. If more than one license is
required, such as one for trading and one for each transaction, you should make the
clause more specific to refer to licenses for import trading and for the import
transaction.

• License Costs

Which party will pay for the imports license(s)?

If the import license is a one-time deal and must be obtained for each shipment
imported, the cost of the license is usually negotiable between the parties. One party
may agree to pay the cost as an incentive toward the foreign purchase. As another
alternative, the parties may agree to share the cost. If an import license authorises the
importer to trade in imports for a fixed time and covers all shipments within that time,
the cost is usually borne by the buyer, who will benefit from the reuse.

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• Compliance With Import Restrictions

If the goods are subject to import restrictions—including packaging, labelling,
marking, quarantine, fumigation, other pest control treatments, or inspections—
which party will be responsible for making the arrangements?

If the import license is a one-time deal and must be obtained for each shipment
imported, the cost of the license is usually negotiable between the parties. One party
may agree to pay the cost as an incentive toward the foreign purchase. As another
alternative, the parties may agree to share the cost. If an import license authorises the
importer to trade in imports for a fixed time and covers all shipments within that time,
the cost is usually borne by the buyer, who will benefit from the reuse.

• Costs of Complying with Import Restrictions

Which party will be obligated to pay the costs of complying with import restrictions or
inspections?

Again, there is no customary practice as to which party will pay the compliance costs.
It is negotiable. If the import and export costs are comparable, the seller may pay for
exporting and the buyer may pay for importing. If these costs are very unequal, the
parties may consider totalling the costs and splitting them. As another option, one
party may pay all of the costs as an incentive for making the deal.

• Import Fees and Taxes

Which party will be obligated to pay import duties or other government-imposed fees
or taxes for importing?

The import duties and fees can be substantial because most countries impose tariffs,
VAT taxes, customs processing fees, and other taxes, often based on the value of the
goods imported. No “typical” arrangement is customary for payment. The same
considerations apply for importing costs as for the costs of complying with import
restrictions or inspections.

Risk of delay of Failure

All international contracts carry the risk that import requirements will not be met—whether
timely or at all. Both parties are at risk if the import fails—the seller may have to absorb costs
for preparing the goods for export, shipment, and sale overseas, and the buyer may have to
assume amounts spent in presale promotion, importing, and receiving arrangements, and
consumer sale compliance unless they can obtain replacement goods, often at additional
cost. A delay in clearing customs of the importing country is likely to cause both parties to
incur additional labour, storage, shipping, and other costs.

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The issue of failure or delay in importing is made more complex by the question of fault. Did
the seller use the wrong labels? Did the buyer change the order just before shipment? Was
the failure or delay caused by factors beyond the control of either party? In international
contracts, there is a significant political risk involved. Governments and economies are
intertwined, and the right to import is therefore dependent on the relationships between the
governments of the exporting and importing countries. Your contract should anticipate the
risks involved and should establish the rights and obligations of the parties accordingly. Be
sure to consider provisions for the following items.

• Timeliness

What is considered a “timely” import?

Your contract should provide a time for import or a means for determining that time.
If no time is provided, a reasonable time may be implied, but “reasonableness” is a
subjective standard that may result in a dispute when one party is dissatisfied with
the other’s choice of a “reasonable” time. Moreover, if a reasonable time is implied
by a court, both parties may be dissatisfied by the court’s opinion of reasonableness.

• Default

If failure or delay in importing is caused by one party, what will be that party’s
obligations and what will be the other party’s rights?

Most contracts take a hard approach to a failure or delay in importing caused by one
party: it is usually a ground for termination of the contract, and the party at fault owes
damages, actual or liquidated, to the other party. The hard approach may be softened
a bit by requiring the party not at fault to mitigate the damages by taking reasonable
steps, such as by diligently seeking a replacement sale or purchase. Assuming that the
parties would rather complete the sale than negate the transaction, most contracts
also give the party at fault a short extension of time within which to rectify the
problem and to complete the contract, perhaps with a comparable allowance for costs
caused by the delay.

• Government Interference

What will be the rights and obligations of the parties if, before the goods clear
customs, there is a sudden change in import laws such that performance of the
contract becomes overly burdensome on one party or impossible?

The effect of uncontrollable factors is commonly covered in a contract provision
known as a force majeure clause. However, a force majeure clause usually provides
for termination of the contract if performance becomes impossible because of natural
catastrophise.

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If man-made events cause performance to become more burdensome (for example
because import duties are imposed or increased) or impossible but only for an
unknown time (for example, because trade sanctions are imposed by the
government), the parties may still want to complete the contract—in which event they
should provide for renegotiation or termination only if export remains impossible
after a certain period has elapsed.

Governments control imports more rigorously than exports, primarily in an effort to stem the
flow of domestic capital into foreign countries and to protect domestic industries from what
is considered unfair competition by foreign producers with access to cheaper labour and
better technology. It is therefore important to carefully research and conduct due diligence
regarding the import controls that you might encounter when trading on any of the world’s
continents. To learn about the import controls of a certain country, you should seek
assistance from the government agency in charge of trade, exports or imports and customs
compliances for that country, shippers, freight forwarders or customs brokers, or
international trade lawyers and consultants. (Karla C. Shippey, 2009).

In South Africa, one would look at the Department of International Trade and Competition
(dtic), the International Trade Administration Commission (ITAC) and the South Africa
Revenue Service (SARS), amongst several others.

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Topic 1.11: Organisation, roles, and principles of international commercial terms

[KT0111]

What are Incoterms® Rules? 60

The Incoterms® rules are the world’s essential terms of trade for the sale of goods. Whether
you are filing a purchase order, packaging, and labelling a shipment for freight transport, or
preparing a certificate of origin at a port, the Incoterms® rules are there to guide you. The
Incoterms® rules provide specific guidance to individuals participating in the import and
export of global trade on a daily basis.

Who publishes the Incoterms® Rules?

Since its founding in 1919, ICC (International Chamber of Commerce) has been committed to
the facilitation of international trade.

Different practices and legal interpretations between traders around the world necessitated
a common set of rules and guidelines. As a response, ICC published the first Incoterms® rules
in 1936. We have been maintaining and developing them ever since.

Why use Incoterms® rules in international trade?

Although other clauses for global trade exist around the world, such as the Harmonised Tariff
Schedule of the United States, Incoterms® rules are global in their reach. Similarly, Incoterms®
rules do not include trade terms codified for national purposes, such as the “less than
truckload shipping” (LTL) rule of the United States. Unlike national trade policies, Incoterms®
rules are universal, providing clarity and predictability to business.

60 https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/

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What does “Incoterms®” stand for?

“Incoterms®” is an acronym standing for “international commercial terms”. “Incoterms®” is
a trademark of International Chamber of Commerce, registered in several countries.

The Incoterms® rules feature abbreviations for terms, like FOB (“Free on Board”), DAP
(“Delivered at Place”) EXW (“Ex Works”), CIP (“Carriage and Insurance Paid To”), which all
have very precise meanings for the sale of goods around the world.

These terms hold universal meaning for buyers and sellers around the world. If you are a
financial analyst in the City of London, then you might associate the acronym “FCA” with the
United Kingdom’s Financial Conduct Authority. However, for importers and exporters around
the world, FCA are the initials used for “Free Carrier,” or the seller’s obligation to deliver the
goods to the carrier nominated by the buyer at the seller’s premises or another named place.

When were ICC’s Incoterms® rules last updated?

ICC last updated the Incoterms® rules in 2019. While Incoterms® 2020 is the most current
version of the trade terms, Incoterms® 2010 is still in effect today and can be accessed under
our resources for business.

What happened to Incoterms 2015, Incoterms 2016, Incoterms 2017, Incoterms 2018, and
Incoterms 2019…?

Do not worry, you did not miss them. They do not exist! The latest edition of the Incoterms®
rules is Incoterms® 2020. However, Incoterms® 2010 remains in effect for those using them.

To learn more about the evolution of Incoterms® rules, please visit Incoterms® rules history.

Related free publications.

Free Incoterms® 2020 introduction

How best to choose the right Incoterms® rule for the particular sale contract; and sets out
the central changes between Incoterms® 2010 and Incoterms® 2020?

Incoterms® 2020 practical free wallchart

Incoterms® 2020 practical A4 chart outlines the obligations, costs and risks of the buyer and
seller under each of the 11 Incoterms® rules. The handy chart can be easily printed and kept
as a reference guide.

These resources are being provided separately for your reference in PDF format and form
part of your learning materials.

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On 1 January 2020, Incoterms® 2020 ushered in a new era for the world’s most essential
terms for trade. The International Chamber of Commerce (ICC) explains some of the main
changes.

Which Incoterms rule should I use?

The latest edition of the Incoterms® rules features an in-depth introduction to help users
select the appropriate Incoterms® rule for their sale transaction. The introduction explains
the purpose and use of the Incoterms® rules, identifies differences between Incoterms®
2010 and Incoterms® 2020, outlines best practice for incorporating the Incoterms® rules into
contracts and explores the relation of contracts ancillary to the sale contract, the concepts of
risk and delivery, the role of the carrier, and the care to be taken when using variants of the
Incoterms® 2020 rules.

Incoterms® 2020 also incorporates expanded explanatory notes for users at the start of each
Incoterms® rule. These explanatory notes assist users with accurately interpreting the latest
edition of the Incoterms rules to avoid costly misinterpretations or misapplications.
Why has the FCA Incoterms rule been revised?

Free Carrier (FCA) has been revised for Incoterms® 2020 to cater to a situation where goods
are sold FCA for carriage by sea and buyer or seller (or either party’s bank) requests a bill of
lading with an on-board notation. FCA in article A6/B6 now provides for the parties to agree
that the buyer will instruct the carrier to issue an on-board bill of lading to the seller once the
goods have been loaded on board, and for the seller then to tender the document to the
buyer (often through the banks).

Where are the costs listed in Incoterms® 2020?

Within Incoterms® 2020, all costs associated with a given Incoterms rule now appear at article
A9/B9 of that rule, allowing users to see the full list of expected costs at a glance. In addition
to the aggregated presentation, the costs associated with each item – for example, carriage
(article A4/B4) or export clearance (article A7/B7) – still appear in the respective articles to
accommodate a user who wants to focus on a specific aspect of the sale transaction.

What are the different levels of insurance coverage in CIF and CIP?

The Incoterms 2020 rules provide for different levels of insurance coverage in the Cost
Insurance and Freight (CIF) rule and Carriage and Insurance Paid To (CIP) rule.

Under the CIF Incoterms® rule, which is reserved for use in maritime trade and is often used
in commodity trading, the Institute Cargo Clauses (C) remains the default level of coverage,
giving parties the option to agree to a higher level of insurance cover. Taking into account
feedback from global users, the CIP Incoterms® rule now requires a higher level of cover,
compliant with the Institute Cargo Clauses (A) or similar clauses.

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How does Incoterms® 2020 account for arranging carriage?

Incoterms® 2020 recognises that not all commercial trade transactions from the seller to the
buyer are conducted by a third-party carrier. In some cases, transactions are conducted
without a third-party carrier at all, such as a seller using its own means of transportation, or
a buyer using its own vehicle to collect goods.

Where is information on security-related requirements?

Building on the extensive security-related requirements established by Incoterms® 2010, the
latest edition of the Incoterms® rules includes clearer and more detailed security-related
obligations in articles A4 on carriage and A7 on export/import clearance of each Incoterms®
rule. Costs relating to these requirements also appear in the consolidated costs article, A9/B9.
Is the Incoterms rule DPU new?

No, simply renamed and moved to reflect the content of the rule more accurately. The former
Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to
emphasise that the place of destination can be any place and not just a “terminal,” and to
underscore the sole difference from Delivered at Place Unloaded (DPU) – under DAP the seller
does not unload the goods, under DPU, seller does unload the goods.

And since delivery under DAP happens before unloading, Incoterms® 2020 presents the newly
named DPU after DAP.

Beware of untrustworthy sources.

There is a significant amount of misleading information concerning the Incoterms rules on
the Internet and users should be aware of the existence of incomplete, inaccurate, and
unofficial information. From referencing non-existing rules – such as Incoterms 2015,
Incoterms 2016, or Incoterms 2017 – to selling deceptive training sessions, these websites
can result in unintended costs for both buyers and sellers.

Unless sourced directly from ICC or ICC regional offices (known as ICC national committees),
these Incoterms® 2020 materials should not be trusted, as they may result in contractual
mistakes and ensuing disputes.61

61 https://iccwbo.org/resources-for-business/incoterms-rules/what-are-the-key-changes-in-incoterms-2020/

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Topic 1.12: Types and uses of different international freight carriers (all modes)

[KT0112]

What are Freight Carriers?

Freight Carriers are the freight companies that physically transport “carry” the freight on
behalf of shippers. In most cases they are not also freight forwarders, who manage the
shipment on behalf of the shipper, however, NVOCCs (Non-Vessel Operating Common
Carriers) are kind of a combination of carrier and forwarder.

If one is making an international freight shipment, the shipment will likely be carried by
separate freight companies for pickup, main transit, and delivery. Freight trucking companies
and railroad companies carry most pickup, delivery, and other domestic freight. Cargo and
standard airlines for air freight, and ocean carriers for sea freight, carry most international
freight.62

It is important to note that the objective of all freight transport is to achieve economic
efficiency in the movement of goods. Freight transport must be primarily directed at creating
conditions that support this objective.

In South Africa, a very large proportion of freight transport movement is provided by
parastatals in railways, ports, pipelines, and aviation.63

Read the accompanying report, published by the Department of Transport, referenced in the
footnote above in order to understand the local dynamics of freight transport and ca rriers.

Globally however, each country will have different transport dynamics unique to its
geography, infrastructural capacity, and development, as well as other economic factors.
Freight carriers will be discussed in greater detail further on in this course.

62 https://www.freightos.com/freight-resources/freight-carriers-freight-term-

glossary/#:~:text=Freight%20Carriers%20are%20the%20freight,freight%20on%20behalf%20of%20shippers.&
te xt= Cargo%20and%20standard%20airline s%20for,fre ight%2C%20carry%20most%20inte rnational %20fre ight
63 https://www.transport.gov.za/documents/11623/39906/7_FreightTransport2017.pdf/a3f7cb55 -8d77-4eea-
b665-4c896c95a0d8

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Chapter 2 | The International Freight Forwarder and the
Freight Business [KM-01-KT02]

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

Topic Topic Element/Heading Knowledge Theory
2.1 Business principles and practices for international KT0201
freight forwarding
2.2 Calculation of customs duties for international trade KT0202
(import and export) transactions
2.3 KT0203
Uses and applications of certificates of origin and other
2.4 commercial documents KT0204
2.5 KT0205
Legal principles for international freight business
2.6 KT0206
Infrastructure and equipment in international freight
forwarding

Approaches to multimodal surface freight import
clearances

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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 Discuss the significance of certificates of origin and IAC0201
other commercial documents in international trade
transactions IAC0202
2 Identify and explain different uses of different
infrastructure and equipment in international freight IAC0203
forwarding
3 Explain the legal principles used in international freight
business

***

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Topic 2.1: Business principles and practices for international freight forwarding

[KT0201]

Let us recap!

What is Freight Forwarding? 64

Freight forwarding is the service most shippers use to arrange freight shipments. Freight
forwarders are the experts who understand how the end-to-end shipping process works. You
can think of them as travel agents for freight.

Freight forwarders come in many shapes and sizes. Some of the smaller forwarders are
essentially trucking companies or trucking brokers and are not involved in international
freight forwarding. Some specialise as ocean freight forwarders or as air freight forwarders.
Small freight forwarders typically limit their reach to a few popular countries where they have
a working relationship with a local freight forwarder. At the far end of the scale, the larger
freight forwarders are essentially global freight forwarders.

Freight Forwarding Services: What Do Freight Forwarders Do?

When it comes to the shipment, here is a shortlist of the service that freight forwarders
provide:

• Freight forwarders prepare all the paperwork, make the bookings, and arrange
payments required for each sector of the shipment that they are responsible for.

64 https://www.freightos.com/freight-resources/freight-forwarder-ultimate-guide/

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• They act on behalf of their customers with numerous other parties involved in the
shipment, air cargo carriers, any other freight forwarders involved in the shipment,
and trucking companies.

• Most freight forwarders provide a customs brokerage service, which means they are
both a clearing and forwarding agent and may act on your behalf with customs agents.

• If something goes wrong or is at risk of going wrong, freight forwarders step in and
troubleshoot.

When it comes to working with freight forwarders, here is the minimum level of service
customers should expect:

• When customers first make a booking with a freight forwarder, they expect the freight
forwarder to explain what they need to know, for instance on key freight documents
and on how the shipment will progress, they regard the freight forwarder as the
experts who can inform them on anything else that they would like to know, about
freight.

• Where required, the freight forwarder will discuss options and give advice.

• As the shipment progresses, freight forwarders should keep the customer informed,
especially if at any point, the shipment faces a significant risk of delay.

Below is a typical thought process scenario, which a potential customer may go through as
they decide if they require the services of a freight forwarder:

< Do I Need a Freight Forwarder? >65

The extent to which you can get by with or without a freight forwarder can be broken down
into the four following scenarios.

1. Going It Alone Without A Freight Forwarder

Much fewer people use travel agents these days, so why not skip the middleman and arrange
the shipment yourself, or with just the help of a customs broker?

This is where the analogy with travel agents breaks down. For most shipments, it simply is not
possible to arrange international freight online with ocean or sea carriers.

And even if it was possible to do without a freight forwarder, it is a risky game for non-
specialists to play. A lot of things can go wrong in freight, and they often do. You need to
cover your bases with freight insurance.

65 https://www.freightos.com/freight-resources/freight-forwarder-ultimate-guide/

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2. Your Supplier’s Freight Forwarder Arranges The Entire Shipment

Your supplier may be an expert in manufacturing or trading, but they will not be freight
experts.

If they have an arrangement with a local freight forwarder who can manage an entire
international freight shipment, it is unlikely to be that much better a deal than you can
arrange. When it comes down to it, the supplier will be looking to recoup their costs.

If they on-cost the freight charges, they have little incentive to secure a good rate. That means
you will probably be paying inflated freight charges.

If they offer a sale/freight package, they are likely to inflate that price.

3. Your Supplier’s Freight Forwarder Arranges The Shipment As Far As e.g., The USA

This is a classic trap that sees inexperienced importers falling into all the time. Many suppliers
offer to arrange the shipment as far as the port in the US. If you only add on local trucking
costs, it seems like a great deal. But there are other costs involved.

This shipping arrangement usually uses one of the “C” incoterms, especially the CIF incoterm.
These incoterms may have several limitations for an importer including a common scenario
where the importer is held hostage to inflated costs.

4. You Engage A Freight Forwarder To Arrange The Shipment From Either The Factory Or
Foreign Port

If the idea of wading through four different options seems like too much information, that is
precisely why you should be letting a freight forwarder manage the shipment. You need a
partner to take care of it for you.

That partner is your international freight forwarder. When customers are ready to do
business with a freight forwarder, and their goods are ready to ship, they will often proceed
to request a quote or an estimate.

Requesting A Quote 66

To demonstrate competency as a freight forwarder from the get-go, you may follow this quick
list to make sure you are taking a good look at all possible options for your customer.

A freight forwarder must be proactive by requesting the important following information:

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Contact Details

• Make sure that you have the full addresses for pickup if the shipment is door to door,
including postcode and full destination address. Zip codes are sometimes enough but
the more information, the better.

• You may need to request the name of the port of origin. All airports and seaports have
an international code (e.g., ZAJNB for South Africa, OR Tambo International Airport if
it is port to port or port to door.

• If someone other than the consignee is receiving the shipment, request their contact
details ready too.

Weights And Measures

• Request the total weight of the shipment. You may in some cases probably still get by
in ‘pounds’ (USA), but suppliers and increasingly forwarders use ‘kilograms’. You can
get this information from the packing list.

• If the shipment includes a mix of boxes, pallets, etc, you will need to request the
customer to itemise how many of each type.

• You will have to request total cubic volume, also called “CBM”. Use this simple cubic
meter calculator. If there is a Total Volume field on a wizard type form, you will
probably need to round to the nearest whole number.

ACTUAL WEIGHT VS DIMENSIONAL WEIGHT

This is not something extra that you should prepare before requesting information for a
quote, but it is better to find about this sooner than when your customer calls to query why
they have been quoted for the “wrong” weight.

Shipments that are comparatively light for their volume are often uneconomical for carriers
to ship. The freight industry produced a formula to charge light shipments at a profitable
weight based on the shipment’s volume. This deemed weight is called the dimensional or
volumetric weight. Use this chargeable weight calculator to see what wish weight your
shipment will be quoted at.

Product Description

International freight works off HS Codes – basically a global index of product types. The official
product name and code should be on the commercial invoice, but it is best to check anyway,
using an HS Code lookup tool. It pays to check this because an uncorrected error could lead
to delays in customs clearance later on.

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Considerations for Working with Global Freight Forwarding Companies 67

Working with name-brand global forwarders has its advantages. They have the muscle to
secure good rates and preferential treatment from the big air and ocean carriers. But being
popular means that the larger forwarders have to make choices. Their larger customers bring
in more business, and it is only natural that in busy periods, larger customers will get
preferential treatment to the detriment of smaller customers. Here is the type of service,
smaller businesses can expect. Only 35% of large forwarders responded to a small business’s
quote request in a recent mystery shopping survey.

A customer needs to be able to rely on contacting their freight forwarder when necessary.

Of course, the reverse is also true. Although local forwarders can usually give their small
customers more width and are faster to respond, they may not be as competitive on price.
This is something to consider should your strategy be to go for the cheapest price.

Most forwarders will claim to provide superior service, but they are all aware that winning a
new customer generally comes down to price.

However, making a decision on price alone can be deceiving. For instance, some forwar ders
discount the first shipment to win the sale but make up for it with on subsequent shipments.
Also, some forwarders hide charges in the terms and conditions to make their quote price
look more attractive than those from more honest competitors.

There are of course forwarders who lead on price. That almost certainly means a reduction in
service. Depending on the services they cut out – for instance, some forwarders specialise in
only one trade lane or only in air freight – that may not affect your business, but be aware,
some forwarders cut back on general customer service levels. Many things can and do go
wrong in international shipments. That cheap price may come back to bite.

The Freight Forwarding Company’s Service

A customer’s shipment is worth more than the shipment value – it is needed to grow you are
their business. That is why they need a reliable freight forwarder they can trust to handle
their valued goods.

Many larger forwarders are also 3PLs (third party logistics providers) who speciali se in
providing broader support (contract logistics) for their customers. They can provide useful
services for importers, like superior shipment tracking and warehousing, and ultimately
reliable freight forwarding. The trade-off, of course, is likely to be on price.

But service is not just about breadth it is also about quality. Freight forwarding takes a lot of
coordinating. Airlines, ocean carriers and especially customs agents are not forgiving of
incorrect, incomplete, or late paperwork. If a forwarder is not on top of a customer’s
shipment, it risks being delayed and incurring unnecessary additional charges.

67 https://www.freightos.com/freight-resources/freight-forwarder-ultimate-guide/

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As a logistics service provider, the freight forwarder should communicate regularly and
transparently with their customers. If a customer has to wait a week to get a freight quote
before shipping, that might be a good indication that they will ultimately get bad service. A
reliable forwarder will provide status updates, quickly alert a customer of any problem, and
just as quickly work to resolve them, for instance, if a glitch occurs at customs or the
warehouse, or when a shipment is behind schedule. If this is not happening, then a customer
may decide that it is time to start looking for a new freight forwarder.

Good communication is important with freight charges as well. Freight quotes should not
require deciphering. Reliable freight forwarders should not have hidden charges or include
unfair terms and conditions that get the forwarder off the hook.

A great partnership requires each partner knowing what is required
of the other. Soon after being selected by a customer as their new
forwarder, meet up with them to discuss what you both expect in
the way of communication. As a forwarder, you need to quickly be
on top of any documentation that your customer sends your way
and vice versa. The customer will probably want to know more
about the process, the key documents required, and at what points
along the shipment they will get updates. You will want to agree on what point your customer
wishes to be notified of potential problems. This way, you can ensure you deliver a superior
freight service.

The digital forwarder is a new breed worth considering. They compete for smaller importers
by providing a better service. They can do this because process automation enables them to
run a leaner business, it reduces errors and speeds up internal processes. The integrated
customer interfaces deliver a superior user experience. There are few of them still, and they
are still building capability. In particular, not everything is automated yet, and many are still
building up their geographic coverage,68 but rapidly doing so. Traditional freight forwarders
therefore have to be geared to undergo digital transformation in the unfolding Fourth
Industrial Revolution (4IR).

In virtually every country, in order to conduct international freight business, a company must
be legally and accordingly registered, approved, and licensed to do so. In South Africa, this
would be particularly regulated, administered and controlled by the SARS in the context of
the current customs legislation in place.

It is incumbent upon the freight forwarder to ensure that it is in full compliance with all local
and international legal requirements that are pertinent and necessary for them to conduct
business above board.

68 https://www.freightos.com/freight-resources/freight-forwarder-ultimate-guide/

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The Principles of Freight Forwarding69

The principles of freight forwarding are premised on the efficient and cost-effective transfer
of goods that are maintained in good condition throughout their travels.

To accomplish this, freight forwarders become experts in managing the logistics necessary to
ensure that goods arrive on time. Successful trade and shipping in expanding globalised
markets means having the right tools at your disposal.

Negotiating tariffs, customs regulations and being fluent in the requirements of shipping by
land, sea, rail, and air, freight forwarders manage the risks and benefits of shipping both
nationally and internationally using the latest advances in information technology.

Successfully Navigating the World of Freight Forwarding

Having the knowledge and skills to navigate the regulations of freight forwarding is integral
to ensuring the successful shipment and delivery of goods. Even as the knowledge of customs
regulations is an important component, the successful transfer of goods through freight
forwarding relies on its service industry. As such, freight forwarding depends on having the
right people whose commitment to excellence and customer satisfaction ensures that goods
reach their final destination in a timely and efficient manner.

Many customs brokerage firms recognise this and ensure that their most qualified personnel
are available to tailor and develop a comfortable shipping experience for their clients.
Negotiating the logistics and regulations of freight forwarding is a complex task; the proper
import and export of goods depends on very much on a competent customs brokerage firm
and a freight forwarder you can trust.70

Looking Forward - The Freight Forwarder's Guide to Industry 4.071

Perhaps the most important trend that shippers and freight forwarders will need to track as
Industry 4.0 gains prevalence is digitisation. As factories become increasingly digital, their
needs and requirements are likely to change in ways that require higher degrees of
digitisation from their vendors and suppliers. If, for instance, a given business has automated
(or even just digitised) its freight procurement process, that business is likely to express a
natural preference for shippers that can integrate into those digital workflows by providing
online quotations more or less instantaneously.

By the same token, manufacturing businesses that utilise sales & operations execution (S&OE)
workflows to manage potential disruptions may favour freight forwarding companies that can
offer real-time tracking of orders and vehicles.

69 http://www.farrow.com/article-what-is-freight-forwarding
70 http://www.farrow.com/article-what-is-freight-forwarding
71 Posted by Brian Hoey on June 12, 2018 – Flexis Blog

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The examples above may potentially seem like instances of capriciousness or arbitrary
preferences, but, if you think of the fourth industrial revolution as building data-driven
ecosystems, it is easy to understand why the operators of a smart factory would consider data
visibility to be a top priority. At each step in the manufacturing process, data is collected,
utilised, and shared in a highly visible manner; as additional high-quality information is
integrated into the value chain, efficiency grows exponentially. By partnering with shippers
or freight forwarders that provide the same level of transparency and connectivity,
manufacturers grow their ecosystems and add additional value beyond bundling volumes and
physical consolidation.

By partnering with businesses that are unable to provide this level of visibility, they would
lose out on this added value. More than that, the forwarding company in question, which
should otherwise be cutting down the level of complexity involved in moving products long
distances, would in fact be adding to the complexity via difficult integration with Industry 4.0
workflows.

Combating the Disparate Value Chain

While this post may have shippers feeling like the demands of these new technological
realities will be onerous and difficult to grapple with, the reality of the situation is much less
dire. Yes, increasing visibility and creating a more connected IT environment will be major
hurdles for many in the shipping industry. Overcoming these hurdles, however, will offer not
just competitive advantages in terms of finding clients, but exciting new opportunities to add
value and bolster the efficiency and agility of your own operations.

For instance, as freight forwarding networks in the global supply chain becomes less
concentrated, digital workflows can combat the new challenges that arise while helping to
maintain visibility and cohesion. Again, shippers are hired in part because they’re able to
decrease complexity for their clients, a task which becomes increasingly herculean as supply
lines spread across the globe and the most common shipping routes lose ground to new paths
with new challenges; what better way to provide value for your customers than by continuing
to reduce this ever-increasing complexity through connected digital systems that turn
byzantine global shipping realities into cohesive, comprehensible information?

Even looking beyond, the question of visibility, adopting a digital supply chain offers shippers
and freight forwarders the chance to leverage data into improved administration of core
competencies. Not only will communication and collaboration with clients be made easier by
shared or interoperable IT, but the bundling and consolidation of products and the
optimisation of capacity usage will be made more
efficient by algorithms trained on digital
representations of your value chain.72

72 https://blog.flexis.com/the-freight-forwarders-guide-to-industry-4.0

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Topic 2.2: Calculation of customs duties for international trade (import and
export) transactions [KT0202]

What are Customs Duties and Taxes?73

Customs duties are imposed by the Customs and Excise Act 91 of 1964 and the new Customs
Duty Act Bo. 30 of 2014. They are levied on imported goods with the aim of raising revenue
and protecting the local market. They are usually calculated as a percentage of the value of
the goods (set in the schedules to the Customs and Excise Act). However, meat, fish, tea,
certain textile products and certain firearms attract rates of duty calculated either as a
percentage of the value or as cents per unit (for example, per kilogram or metre).

Additional ad valorem excise duties are levied on a wide range of luxury or non-essential
items such as perfumes, firearms and arcade games. See the External Standard - Ad Valorem
Excise Duty. This is a publication by SARS.

The bases in determining the correct duties and taxes payable on imported goods is set out
in the following Customs areas:

• Tariff;
• Valuation (value); and
• Origin.

All import and export transactions require declarations according to an appropriate tariff
heading which is derived from the WCO Harmonised System (HS) Code.

Classification / Tariff 74

All import and export commercial transactions require commodities on Customs declarations
to be classified according to an appropriate tariff heading. The tariff classification code is
directly linked to the rate of duty payable on that commodity. Classification operates as part
of the international Harmonised Commodity and Coding System, under the WCO Harmonised
System Convention.

Tariff classification of goods is one of the more complex issues under the Customs and Excise
Act. Tariff classification relates to the proper classification of goods within the Harmoni sed
Commodity Description and Coding System (tariff book). The Tariff Book indicates the normal
customs duties (Schedule No 1, Part 1), excise duties (Schedule No 1, Part 2A), ad valorem
duties (Schedule No 1, Part 2B), anti-dumping duties (Schedule No 2, Part 1) and
countervailing duties (Schedule No 2, Part 2) that would be payable on importing goods into
South Africa.

73 https://www.sars.gov.za/ClientSegments/Customs-

Exc ise /Dutie sTaxe s/Page s/de fault.aspx# : ~ : te xt= Customs%20dutie s%20are %20impose d%20by,the %20Cus to
ms%20and%20Excise%20Act
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Tariff classification of goods also determines the necessity for import control permits, the
rules of origin obligations, and the applicability of any customs rebate provisions.

The World Customs Organisation (WCO) issued the general rules of interpretation that are
used as a guide in the correct classification of goods. It is crucial for an importer to have
sufficient knowledge of these rules to ensure the correct classification of imported goods. It
is important to ensure that an importer has a proper description of goods before the goods
are imported into South Africa as the tariff code identified has to be inserted on the customs
declaration. The customs duties and VAT payable will be calculated based on the rate of duty
dictated by the specific tariff code. Failure to correctly classify goods within the tariff book
could result in either under or over payment of Customs Duties and Value-Added Tax (VAT)
on importation.

In cases where the tariff classification of goods is complex, i.e., the goods could easily be
classified under two tariff headings or there is no clearly identifiable appropriate tariff
heading, it is the duty of the importer to approach the local SARS office and apply for a written
tariff determination. If you do not agree with the Tariff , you can follow the dispute process.

Valuation 75

Customs values are set by the General Agreement on Tariffs and Trade (GATT) valuation code,
which involves six valuation methods.

The GATT Agreement on customs valuation has been accepted by all major trading countries.

The Valuation Agreement prescribes six methods of valuation which must be applied in strict
hierarchical order. Thus, if the transaction value cannot be ascertained in terms of Article 1,
Article 2 must be tried, and so on. The methods, in order of precedence, are:

1. The transaction value of the goods, i.e., the price actually paid or payable
2. The transaction value of identical goods
3. The transaction value of similar goods
4. The “deductive” method (where the customs value is derived from the selling price of

the imported goods in the Republic)
5. The “computed” method (where the value is derived from the built-up cost of

the imported goods).
6. The so-called “fall back” method, being one of the other five methods applied more

flexibly.

However, the majority of goods are valued using method one, which is the actual price paid
or payable by the buyer of the goods. The "free on board" price forms the basis for the value
but allows for certain deductions (such as interest charged on extended payment terms) and
additions (such as certain royalties).

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Customs officials pay particular attention to:

• The relationship between the buyer and seller
• Payments outside of the normal transactions (such as royalties and licence fees)
• Restrictions that have been placed on the buyer.

These factors can result in the price being increased for the purpose of determining customs
value, directly affecting the duty payable.

For more information, refer to the Valuation of Imports and Method 1 Valuation of
Imports policies. These are published by SARS.

Methods of Customs valuation of imported goods

Six methods of valuation are defined in the current Customs and Excise Act, 1964 and they
need to be applied in sequential order:

• Method 1 is called Transaction value method, and is the primary method which must
be applied whenever the conditions as prescribed are fulfilled (Section 66(1)),

• Method 2 is called similar goods value method (Section 66(4))
• Method 3 is called similar goods value method (Section 66(5))
• Method 4 is called deductive value method (Section 66(7))
• Method 5 is called computative value method (Section 66(8))
• Method 6 is called fall-back value method (Section 66(9) which can only be applied if

all the previous methods cannot be used.

One exception is that the sequence of the deductive value method and the computed value
method may be reversed at the request of the importer in terms of Section 66(6).

< See also – the new Customs Duty Act 30 of 2014 (www.gov.za) >

Rules of Origin

Rules of Origin are the criteria that are used to define where a product was made, i.e., the
economic identity of the goods. They are an essential part of international trade rules because
of policies that “discriminate” between exporting countries.

The origin of a product is used to determine the import duty payable and whether it is subject
to an antidumping or countervailing duty. It is also used for the compilation of trade statistics
and for “Made in …” Labels.

In other words, the origin of a product is important because it will determine how it is treated
at the border of an importing country and the origin may impact on the import duty payable
and admissibility into the country.

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In addition, Rules of Origin may also determine whether goods are entitled to the payment of
less or no Import duties. For this reason, there is a distinction between non-preferential and
preferential Rules of Origin.

The non-preferential rules are applied for “Most-favoured Nation” (MFN) trade purposes (i.e.,
where goods are subject to the general rates of duty), and the preferential rules of origin are
applied in the case of Free Trade Agreements and other preferential duty schemes (e.g.,
agreements where countries have agreed to eliminate or reduce import duties on goods
produced in each other’s territories).

South Africa has signed a number of trade agreements with its trading partners in the past
few years, including the TDCA, SADC, EFTA, SADC EPA, and SACU MERCUSOR trade
agreements.

More information on these and other trade agreements can be found under Trade
Agreements and Schedule 10.

These are published by SARS.

Apart from trade agreements, South Africa also benefits from other international instruments
or agreements, such as the African Growth and Opportunity Act (AGOA) and the different
Generalised Systems of Preferences (GSPs), of which you will find more information
under Other International Agreements.

Topic 2.3: Uses and applications of certificates of origin and other commercial
documents [KT0203]

A Certificate of Origin (CO) is an important international trade document that certifies that
goods in a particular export shipment are wholly obtained, produced, manufactured, or
processed in a particular country. They declare the ‘nationality’ of the product and also serve
as a declaration by the exporter to satisfy customs or trade requirements. 76

COs are requested by customs, banks, private stakeholders, and importers for several
purposes. Almost every country in the world requires CO for customs clearance procedures:
when determining the duty that will be assessed on the goods or, in some cases, whether the
goods may be legally imported at all.

There are two types of COs that chambers can issue:

• Non-Preferential COs which certify that the goods are subject to no preferential
treatment. These are the main type of COs that chambers can issue and are also
known as “Normal COs”.

76 https://iccwbo.org/resources-for-business/certificates-of-origin/

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• Preferential COs, which certify that goods are subject to reduced tariffs or exemptions
when they are exported to countries extending these privileges. These COs tend to be
closely associated with Regional Trade Agreements.

It is clear therefor that the origin of goods is one of the crucial elements for international
trade. Recognising the various purposes in which the origin of goods plays a vital role, the
Customs administrations around the world must implement rules of origin in an effective and
efficient manner.77

Other Commercial Trade Documents

There are over many documents that play a role in international trade. Fortunately, most of
them only apply to specialised cargo. At this stage you only have to be aware of at least the
following nine:

• Shipping Quote
• Commercial Invoice
• Certificate of Origin
• Material Safety Data Sheet
• Shipper’s Letter of Instruction
• Booking Confirmation
• Transport document e.g. – Bill of Lading/Air Waybill
• Packing List
• Letter of Credit

These will be dealt with in greater detail further on in the course.

Topic 2.4: Legal principles for international freight business [KT0204]

In view of the complexity of the global trade, adherence to legal principles that govern
international freight businesses is something that cannot be overlooked. In this regard, FIATA
as the membership body that comprises the International Freight Forwarders’ and Logistics
Service Providers’ Industry, has compiled and upheld a Code of Conduct Document entitle the
‘Business Integrity and Compliance Statement’.78

77 http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/key-issues/revenue-package/guidelines-

on-certification.pdf?la=en
78 https://fiata.com/uploads/media/FIATA_-_Business_Integrity_State ment_and_Code_of_Conduct.pdf

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An extract from the document’s preamble reads as follows:
Preamble

FIATA’s membership comprises the International Freight Forwarders’ and Logistics
Service Providers’ Industry.

Achieving a high standard of service and customer satisfaction depends on several
factors, including everyone’s commitment to abide by the applicable rules and
regulations and to refrain from any activity that can compromise the public image of
the company, create suspicion of wrongdoing, or fail to show the necessary respect
for colleagues and business interlocutors.

Compliance with all legal, regulatory, and internal regulations is mandatory as
stipulated in the applicable law, as well as the observance of common standards and
rules of professional conduct is essential to success in business. Inter alia, these
include the principle of avoiding possible conflict of interests. Conducting business in
line with these principles corroborates
the idea that the company operates in compliance with the rules and with integrity.

Within the International Forwarding and Logistics Industry the concept of integrity
means delivering services commensurate to the expectation of the client, as well as
other stakeholders, without creating intentional disruptions or difficulties. Integrity
can be also seen as a positive set of attitudes which constitute honest and ethical
behaviour in working practices, thus contributing to the enhancement of professional
dignity.

A comprehensive compliance programme relies on our leadership as those in the lead
are principally capable of setting priorities and personally driving the industry’s
culture. Hence industry leaders are the ideal promoters of business integrity. This
gives them the opportunity to launch and implement the integrity and compliance
culture within their businesses at all levels, starting from their own. Staff members
should also be made aware of a business standard based on a culture which
encourages ethical behaviour and compliance.

It is therefore an important consideration for international freight businesses to join
international bodies such as FIATA directly or via their national associations e.g., the
South African Association of Freight Forwarders (SAAFF) in South Africa, in order to
keep abreast of international legal and regulatory developments which may affect
their businesses.

Legal issues are key for those operating in the area of freight forwarding whether in
their own jurisdiction or internationally.79

79 https://fiata.com/who-we-are/governance/advisory-bodies/advisory-board-on-legal-matters.html

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There are a number of international conventions that offer a legal and regulatory framework
to facilitate transit transport and trade at the international level. Some of these are the
International Convention on the Harmonisation of Frontier Controls of Goods (1975), the
Customs Convention on the International Transport of Goods under Cover of TIR Carnets
(1982), the Customs Convention on Containers (1972) and the Customs Convention on the
Temporary Importation of Commercial Road Vehicles (1956), among others. In addition, the
WTO Trade Facilitation Agreement and the Revised Kyoto Customs Convention are also
amongst the key important frameworks for facilitating transit transport and trade facilitation.

Cost-effective international trade and international transport of goods requires the alignment
of ordering, payment, insurance, logistics, customs inspection and clearance, and border
controls. If this complex process is not solved seamlessly, goods are delayed or go missing,
the wrong goods are being shipped, and overall transaction costs increase. Border
inefficiencies are estimated to cost twice the amount of tariffs, while the removal of those
inefficiencies could increase global trade by as much as US$ 1 trillion and create as many as
21 million jobs worldwide. Furthermore, a recent study by the Organisation for Economic
Cooperation and Development (OECD) found that reducing global trade costs related to trade
facilitation by just 1 percent would lead to a $40 billion increase in world income.

Cost, time, and documents required to export and import.

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Earlier Statistics…

In order to stimulate trade, it is critical to lower trade costs and streamline cross-border trade,
in particular through harmonisation of transport and trade facilitation laws and regulations,
standardisation and simplification of the procedures and documents.

Standardisation and harmonisation fosters convergence, reduces the cost and time of trading
and ultimately can create larger trading opportunities. The main vehicle to achieving
harmonisation, standardisation and simplification of rules, procedures and documentation is
through the accession to and ratificationof international conventions on transit transport and
trade facilitation.

Topic 2.5: Infrastructure and equipment in international freight forwarding

[KT0205]

In additional to the various legal issues that affect international freight forwarding business,
they alsoneed to conduct business through utilisation of critical infrastructure and equipment
which drives their operations.

Transport Infrastructure 80

Productive investment in transport infrastructure is vital for prosperity.

80 https://www.oecd-ilibrary.org/docserver/9789264278875-6-
en.pdf?expires=1598534549&id=id&accname=guest&checksum=FCD71C7C11C4A9A2BE12E84D2C9AE521

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The economic role of transport infrastructure

The impact on growth of investment in transport infrastructure varies in the different stages
of a country’s economic development (OECD, 2014). In low-income countries, investment in
basic infrastructure provision can make a very large difference in access to education, jobs,
and services (UN, 2015). As incomes rise, better transport services are needed to support the
growth of business activities, exports and value creation, and the focus for infrastructure
investment shifts to supporting these sectors of the economy. In more mature economies,
priorities tend to shift towards addressing issues of congestion and bottlenecks in reasonably
complete networks, the upgrade and maintenance of existing assets, and providing for
technological innovation. Typically, the economic impact of transport infrastructure is more
transformative at lower levels of development, and the incremental impact of new
investment decreases at more advanced stages of development (Eddington, 2006).

Transport infrastructure plays a critical role in the transition from a middle- to high-income
economy. Theoretical and empirical studies have underscored the positive relationship
between high-quality infrastructure and economy-wide productivity (IMF, 2015). This
relationship is underpinned by a number of economic mechanisms triggered by
improvements in transport infrastructure, including the following:

• High-quality infrastructure is a precondition for the provision of efficient transport
services for both freight and passenger movements, which in turn supports core
economic activities and removes geographic barriers to competition.

• Well-functioning logistics systems facilitate trade through lowering access costs to
international markets and by improving the competitiveness of domestic firm (Arvis
et al., 2014).

• Passenger transport connectivity enhances the productive capacity of the economy
by widening and deepening labour markets and through agglomeration gains,
facilitating industrial specialisation and enabling face-to-face interactions between
businesses and specialised workers in high-value service sectors of the economy
(Graham, 2014).

• Infrastructure can be an effective policy tool to address social and territorial
imbalances by connecting rural and remote areas to larger centres of production and
consumption, creating more economic opportunities for residents, and reducing out-
migration.

Growth, Trade, and Infrastructure in Africa 81

According to the Office of the Special Advisor on Africa, the United Nations, approximately 60
percent of the continent’s population lacks access to modern infrastructure, which isolates
communities, prevents access to health care, education, and jobs, and impedes economic
growth.

81 https://www.tralac.org/images/docs/12896/connecting-africa-role-of-transport-infrastructure-exim-bank-
working-paper-march-2018.pdf

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