UNIVERSITY OF FINANCE - MARKETING

FACULTY OF COMMERCE

LEARNING MATERIAL

TRANSPORT AND INSURANCE FOR

IMPORT - EXPORT CARGO

Author: MBA. Nguyễn Thị Cẩm Loan

Training major: International Commerce

HO CHI MINH CITY, DECEMBER 2020

(For internal usage)
 PREFACE
‘Transport and Insurance for import and export cargo” is one of the major subjects for
learners studying international commerce and import-export. It is also a common concern
of import and export companies as well as transport companies like shipping lines, airlines,
forwarders.
The purpose of composing this learning material is to facilitate learning of students in
International Commerce, major of Commerce Faculty - University of Finance and
Marketing who need to get understanding of international transport and insurance for
import – export goods.
The learning material includes 10 chapters:
Chapter 1: Characteristics of international transport modes
Give general knowledge of International Transportation including definitions, roles,
classification and legal Status
Chapter 2: The export and shipping office
Describe role and structure of an export department in an organization.
Chapter 3: Carriage of Goods by Sea
Identify and develop a criterion for selecting a suitable shipping carrier; describe the
different forms of sea transport; outline factors that enable efficient sea transport.
Chapter 4: Carriage of Goods by air
Define terms used in air transport; identify and apply the legal framework governing
international transport; outline the role of various international organizations involved in
air transport, and present airfreight forwarding practices.
Chapter 5: Multi-modalism
Define multimodal transport and the commonly used terms; rationale of development of
multi-modalism; steps in multimodal transport.
Chapter 6: Freight rates
Offers the student an introductory outlook on freight rates, factors influencing formulation
and calculation of freight rates.
Chapter 7: Transport document
Identify basic documents are required for the carriage of cargo.
I
 Chapter 8: Introduction to insurance
Give general knowledge of Insurance including definitions, roles and features and general
principles.
Chapter 9: Risks and losses
Introduce general matters, insured risks, marine risks, exclusions. Give knowledge of
general classifications of losses (partial losses, total loss and general loss and particular
average).
Chapter 10: Institute cargo clauses and the contract of insurance
Introduce insurance clauses such as ICC A, B or C and the contract of insurance, calculate
the premium, present steps to buy insurance and claims compensation.

II
Contents

Chapter 1: CHARACTERISTICS OF INTERNATIONAL TRANSPORT MODES............. 1

1.1. Definition of international transportation ......................................................................... 1
1.2. The role and essentials of a transport system ................................................................... 1
1.2.1. Role.…………………………………………………………………………………….1
1.2.2. Essentials…………………………………………………………………………….....1
1.3. Classifications of international transportation ................................................................. 3
1.3.1. Sea Transport .................................................................................................................. 3
1.3.2. International air transport ............................................................................................... 5
1.3.3. International road transport ............................................................................................ 7
1.3.4. International rail transport .............................................................................................. 7
1.3.5. Piplines ........................................................................................................................... 8
1.4 Legal Status of International transportation ..................................................................... 8
1.4.1. International road transport ............................................................................................ 8
1.4.2. International rail transport COTIF/CIM ....................................................................... 12
1.4.3. International air transport - WARSAW CONVENTION ............................................. 12
1.4.4. International sea transport ............................................................................................ 20
Chapter 2: THE EXPORT AND SHIPPING OFFICE ............................................................ 27
2.1 The export office role ......................................................................................................... 27
2.2 The export office organization and structure .................................................................. 28
Chapter 3: CARRIAGE OF GOODS BY SEA ......................................................................... 32
3.1. Technical bases for sea transport ..................................................................................... 32
3.1.1. Maritime routes ............................................................................................................ 32
3.1.2. Sea ports ....................................................................................................................... 37
3.1.3. Means of transport – merchant ships ............................................................................ 40
3.2. Types of chartering ............................................................................................................ 49
3.2.1. Definition and Specifications of liner ........................................................................... 49
3.2.2. Definition and Specifications of tramp chartering........................................................ 51
3.3. Liner Trade ........................................................................................................................ 53
3.3.1. Containerization ........................................................................................................... 53
3.3.2. Container bases ............................................................................................................. 55
3.3.3. Container transport types .............................................................................................. 62
3.4. Voyage Chartering ............................................................................................................ 70
Chapter 4: CARRIAGE OF GOODS BY AIR .......................................................................... 73
4.1. History of air transportation. ........................................................................................... 73

III
 4.2. International Aviation Associations ................................................................................. 74
4.2.1. International Civil Aviation Organization (ICAO) ...................................................... 74
4.2.2. International Air Transport Association (IATA) .......................................................... 75
4.3. Airline geography .............................................................................................................. 75
4.4. Air Cargo Carriers ........................................................................................................... 77
4.4.1. All cargo carriers .......................................................................................................... 77
4.4.2. Integrators (door to door) ............................................................................................ 78
4.4.3. Combination carriers .................................................................................................... 78
4.5. Air Cargo Agents ............................................................................................................... 78
4.6. Airfreight forwarding practices ....................................................................................... 80
4.6.1. Booking Air Freight ..................................................................................................... 80
4.6.2. Packaging ..................................................................................................................... 82
4.6.3. Size of Shipment........................................................................................................... 83
4.6.4. Labeling and Marking .................................................................................................. 85
Chapter 5: MULTI-MODALISM ............................................................................................... 86
5.1. Introduction to multimodal transport ............................................................................. 86
5.1.1. Definition ...................................................................................................................... 86
5.1.2 Important features .......................................................................................................... 87
5.2. Rationale of development of multi-modalism ................................................................. 88
5.3. Merits of multimodal transport........................................................................................ 89
5.4. Forms of multimodal transport ........................................................................................ 89
Chapter 6: FREIGHT RATES .................................................................................................... 91
6.1. Theory of freight rates ..................................................................................................... 91
6.2. The constituents of the freight rate .................................................................................. 91
6.3. Factors influencing formulation of freight rates ............................................................ 93
6.4. Air freight rates ................................................................................................................. 94
6.4.1. The Air Cargo Tariff (TACT) ...................................................................................... 94
6.4.2. TACT Tariff Rules of Air Freight Calculation............................................................. 95
6.5. Sea freight rate ................................................................................................................. 101
Chapter 7: TRANSPORT DOCUMENT ................................................................................. 105
7.1. Bill of lading (B/L) .............................................................................................................. 105
7.1.1. Definition, functions of bill of lading ..................................................................... 105
7.1.2. Classification of bills of lading ............................................................................... 106
7.1.3. The contents of B/L ................................................................................................ 114
7.2.Voyage charter party........................................................................................................ 120

IV
 7.2.1. Definition of a voyage charter party ....................................................................... 120
7.2.2. Standard form of a voyage charter party ................................................................ 120
7.2.3. Contents of a voyage charter party ......................................................................... 121
7.3. Air Waybill ....................................................................................................................... 133
7.3.1. Definition of air waybill ......................................................................................... 133
7.3.2. Functions of an air waybill ......................................................................................... 133
7.3.3. Classification of air waybills ...................................................................................... 135
7.3.4. Issuing AWB .............................................................................................................. 135
7.3.5. Content of AWB ......................................................................................................... 136
CHAPTER 8: INTRODUCTION TO INSURANCE .............................................................. 139
8.1. An overview of risks and risk management .................................................................. 139
8.2. Nature of Insurance ........................................................................................................ 140
8.3. Common insurance terms ............................................................................................... 140
8.4. Classification of insurance .............................................................................................. 143
8.5. Principles of insurance .................................................................................................... 144
CHAPTER 9: RISK AND LOSS............................................................................................... 148
9.1. Risks in marine insurance............................................................................................... 148
9.2.Loss in marine insurance ................................................................................................. 149
9.3. Adjustment of general average.……………………………………………………….147
CHAPTER 10: INSTITUTE CARGO CLAUSES AND THE CONTRACT OF
INSURANCE .............................................................................................................................. 156
10.1. Cargo insurance clauses ................................................................................................ 156
10.1.1. Institute Cargo Clauses 1963 (ICC 1963) ................................................................ 156
10.1.2. Institute Cargo Clauses ICC 1982 and ICC 2009 ..................................................... 158
10.2. Cargo Insurance contract ............................................................................................. 161
10.1.1.Definition ................................................................................................................... 161
10.1.2.Types of cargo insurance ........................................................................................... 161
10.2.3. Steps of buying marine insurance............................................................................. 162
10.2.4. Claim for insurance compensation ........................................................................... 164

V
CHAPTER 1: CHARACTERISTICS OF INTERNATIONAL TRANSPORT MODES
1.1. Definition of international transportation
Transportation is an economic activity of people, supplying movement of people,
animals and goods from one location to another.
International Transportation is the moving cargo, people from one point or points to
another point or points in which loading point(s) and arrival point(s) belong to different
countries.
1.2. The role and essentials of a transport system and feature of transport
1.2.1. Role
This part conveys an understanding of the importance of transportation in the modern
society.
 Economic role
sự phân phát
Economics involves production, distribution and consumption of goods and services.
bóc lột
Transport is an essential facility for the exploitation or development of economic resources
on a national or international scale. Due to non uniform surface of earth and due to difference
in local resources, there is an immense requirement of transport of resources from one
particular society to other. Transport permits the development of economic resources to the
full. Transport allows articles or materials to be conveyed from areas of low utility to areas
of high utility for production, for consumption. Without a low-cost reliable and well-
managed transport system, goods or services would not be exchanged to people to enhance
their living standards worldwide.
If a commodity is produced at point A and wanted by people of another community at
any point B distant x from A, then the price of the commodity is dependent on the distance
between two centers and the system of transportation between two points. With improved
system the commodity will be made less costly at B.
Transport also helps to move other kinds of resources such as knowledge and skills like
movement of doctors and technicians to the places where there is a need of them.

1
  Social role
Transportation has always played an important role in influencing the formation and
growth of societies. Although other facilities like availability of food and water played a
major role, the contribution of transportation can be seen clearly from the formation of
societies, especially urban centers. People only gather in places where personal travels
especially the journey to and from work are convenient. The increased speed of transport
and reduction in the cost of transport have resulted in quick urbanization rate with variety of
spatial patterns. Transport helps to reduce the gaps between different areas.
 Political role:
Its provision also arises for political reasons. In a society where transport costs are
có tầm quan trọng tối cao
relatively high, the need for a balanced social policy is paramount, otherwise isolated
ngừng, không còn
communities may cease to exist. And due to this reason, many large transport operators are
thuộc sở hữu nhà nước
state-owned and help the government to implement such duties. It is also needed for rapid
movement ofđám đông
troops or movement of persons and goods in case of emergency.
1.2.2. Essentials
The essentials of a transport system embrace three elements: way, vehicles including
motive power unit, and terminals artificially made by man such as the railway, canal or
motorway. One can have a combination of these two circumstances embracing the inland
kênh, đào
waterway system where new canals have been built into an established river or lake network
such as the St Lawrence Seaway thereby offering a through inland waterway network.
cần thiết, thiết yếu
The transport unit may be either of the integral type embracing the carrying and motive
power unit such as the aircraft or ship, or have an independent motive power unit such as the
railway locomotive. The advantage of separate carrying and motive power units is their
independence and flexibility in operation. Moreover, whilst the carrying units are being
transshipped, the motive power unit can be operational elsewhere. A further factor is that the
failure of the motive power unit does not immobilize the carrying unit.
nhân tạo
The terminal must be artificially made by man, and be well designed to ensure the most
efficient operation/utilization of the transport unit using it. This is particularly important
today when more and more emphasis is on more intensive unit operation. Basically, the

2
terminal is the link in the transport chain and merges at an interchange point one or more
forms of transport to offer the through transit such as airport, seaport. It must have adequate
area for expansion and good layout to permit an unimpeded flow of traffic passing through
it.
To conclude, the essential elements of a transport system are the way, the vehicle, its
motive power and the terminal. All must be so designed as to produce an efficient system,
preferably capital intensive with a low labour content, to encourage low tariffs and thereby
facilitate traffic development to contribute to economic expansion and social development.
1.2.3. Feature
Transport is a product which is consumed immediately when it is produced. Hence it
cannot be stored.
1.3. Classifications of international transportation
1.3.1. Sea Transport
From its modest origin in around 3200 BC, maritime transportation has always been the
dominant support of global trade. Maritime transportation is the most effective mode to move
large quantities of cargo over long distances. European colonial powers, mainly Spain,
Portugal, England, the Netherland and France were the first to establish a true global
maritime trade network. With the development of the steam engine in the mid 9th century,
this role expanded considerably as ships were no longer subject to dominant wind force.
Seaborne transportation carries the majority of all goods traded internationally. Maritime
transport remains the backbone of globalized trade and the manufacturing supply chain, as more
than four fifths of world merchandise trade by volume is carried by sea 1. Maritime shipping is one
of the most globalized industries in terms of ownership and operations.
 Advantages
Sea transportation plays important roles in international trade thanks to its advantages:
- Large capacity. To meet and sustain increasing demand in the movement of world
trade, ships have become bigger and better. The biggest ship can handle more than 500,000

1
Review of Maritime transport, 2019
3
MT per one go. The strength of maritime transport does not rest on its speed, but on its
capacity.
- Large throughput of sea routes, ports and continuity of its traffic. Different from rail or
road transport, seaway can accommodate multiple ships of different types at the same time.
Besides, ports are improving in terms of operational size and handling capability. They also
keep up to date with new technology to improve cargo loading and discharge capacity
reduced waiting time for ships at the port for cargoes to be loaded/unloaded.
-Sea transport is very convenient because it utilizes natural waterways that cover more
than 3/4 of the earth surface. Thus, capital investment in developing and maintaining
seaways is very low in comparison with road and rail. Most major maritime infrastructures
involve maintaining or modifying waterways to establish more direct routes such as
navigation channels and canals.
- Sea transport can be used for transporting almost every kind of cargo especially it is
ideal for transporting oversized, heavy and bulk cargo such as oil, ore, phosphates, wheat
and coal.
- The main advantage of maritime transportation is its economies of scale, making it the
cheapest per unit of all transport modes and very suitable for heavy industrial activities and
low cost cargoes. Sea freight is almost the lowest in comparison with other modes of
transport. Large capacity, long transport distance and small crews with only few members
make sea transport productive. Besides, sea transport is fuel efficient.
 Disadvantages
Despite of many advantages, sea transport still has some disadvantages, for instance:
- Sea transport is exposed to risks of ocean disasters like tsunamis, collision, stranding,
overturning, grounding and burning. Statistically, every month there are on average about
300 ships involved in sea accidents.
- Sea transport has long lead time. The average speed of ships is about 15-25 nautical
miles per hour (1 nautical mile = 1.853 km), equivalent to about 28 kph. Under such
circumstances, a ship would travel about 600 km per day. More modem ships can travel at
speeds between 25 to 30 nautical miles (or 45 to 55 km per hour), but it is common that a
4
commercial ship travels slower than 25 miles per hour due to energy saving. It takes a long
period of time for a ship to reach destination. Thus, sea transport is most suitable for products
with long lead time.
Chi phí đầu vào vận tải
- Maritime transportation incurs the highest entry costs in the transport sector. Ships cost
up to USD 100 million and handling equipment is expensive too. For instance, container
cranes could cost millions of US dollars. Typically, a ship has an economic life between 15
and 20 years and thus represents a significant investment that must be amortized.
- Maritime transportation has high terminal costs, since port infrastructures are among
the most expensive to build, maintain and improve.
1.3.2. International air transport
The air cargo industry has gained increasing importance in transportation industry. It can
be a crucial component in the supply chain, on many different layers and in many different
segments. It represents about 1% of the overall freight industry by weight and 30% by value.
Characteristics of air cargo transportation include the following:
 Advantages
- Air routes are almost the shortest way from point to point that leads to reduction of
lead time and energy consumption. Besides, air routes are natural airways that do not require
building and maintenance costs like roads and railways;
- Airfreight provides fast service for initial deliveries of product. Speed of aircrafts is
27 times faster than that of sea vessels, 12 times than that of trucks and trains. This element
of speed allows a producer to apply just-in-time strategy instead of having to operate large
warehousing facilities. Because air cargo operations can offer a shipper the benefit of speedy,
constant resupply, inventory levels can be reduced. By reducing inventory levels, a firm can
free up more capital and reduce inventory holding and obsolescence costs. Airfreight will
continue to support production activities, especially the exchange of samples and delivery of
critical spare parts and high-value inputs. For supply chain management, airfreight will play
an increasingly important role in supporting reverse logistics, including repair and warranty
work for electronics and other high- end consumer goods.
- Air freight provides reliable and secure deliveries of cargoes. Air flights are operated

5
on regular and fixed schedules and air procedures of handling cargo are strictly regulated by
International Air Transport Association (IATA). Statistically, cargos transported by air incur
damage/loss at much lower rates than those transported by sea, road and railways;
- Air cargo is generally competitive for long-distance hauls with time sensitive products
and when other transportation options (e.g. roads, rails and sea ways) are not available.
Therefore, according to IATA statistics, domestic air cargo operations on short distance only
make up about 16% of total global air cargo, as measured in ton-km. International airfreight
is also preferred when transportation happens among land-locked countries where there is
no sea transportation or in cases where border crossings are required.
Thanks to IATA, air transportation procedures are standardized worldwide in terms of
documentation and coding systems (e.g. country, city, airports and flights as well as the
freight calculation).
 Disadvantages
- Air freights are costly. Typically air freight is 4-5 times more expensive than road
transport and 12-16 times than sea transport. Air freight rates generally range from USD
1.50- USD 4.50 per kilogram, while the value of air cargo typically exceeds USD 4.00 per
kilogram. Commodities shipped by air have high values per unit or are very time-sensitive.
Such commodities include documents, pharmaceuticals, fashion garments, production
samples, electronics consumer goods and perishable agricultural and seafood products. They
also include some inputs to meet just- in-time production and emergency shipments of spare
parts.
- Air transportation is dependent on other modes of transport, especially road transport.
Airfreight is multimodal in sense that all shipment involves some road transportation to/from
the airport. Airfreight is thus highly dependent on road access to airports;
- Air transportation is limited by capacity and costly. An average vessel can carry about
100,000 tons of cargoes, in case of train - about 5,000-10,000 tons, but an aircraft can carry
around 100 tons. Example, B 747-400 Freighter has a volume for bulk cargo of 835 cubic
feet and cargo capacity of 113,489 kg (250,200 lbs). Thus it is not suitable for transporting
low cost, high volume and/or high weight cargoes;

6
 - Air transport is characterized by high cost but low financial effectiveness because of
very high operating costs. According to an ICAO report, two thirds of the operating expenses
are fixed. To cover the costs, the airlines must achieve on average 65% of its seats occupied.
Non-fixed costs account for one third of the total costs, including labor costs (about 75%),
fuel costs (about 10 -12%), commissions to travel agents (about 6%) and other costs.
- Air transport is capital intensive. Investing in aircraft requires extensive financing
because aircrafts are expensive.
1.3.3. International road transport
The road vehicle is a low capacity but very versatile unit of transport which is most
flexible in its operation. Since the early 1970s, the international road haulier has become
increasingly dominant in the UK/ Continental trade with some services extending to Asia
and Middle East. It has the following features:
(1) It is very flexible in operation which is particularly useful when circumstances demand a
change in routeing through road works/blockage or disrupted shipping services.
(2) It is very competitive within certain distance bands compared with air freight and train
ferry, both in terms of transit times and rates
(3) Documentation is simple as under CMR a through consignment note is operative with a
common code of liability conditions (in the UK/ Continental trade)
(4) The service tends to be reliable and to a high standard. Delays usually only occur when
bad weather prevails or for some other exceptional circumstances.

(5) The driver accompanies the vehicle throughout the road transit thereby exercising
personal supervision and reducing risk of damage and pilfering. Accordingly, the operator
can control his vehicle at all times as the driver usually reports into his company control
office at staged points en route.

1.3.4. International rail transport

Advantages Disadvantages
 Large transport capacity  High investing in technical
facilities
 Moving speed comparatively high
 Restrict trans-national transport

7
  Cost is comparatively low  Poor regularity
 Less depend on weather and climate
 Often punctual and secure

1.3.5. Pipelines

Advantages Disadvantages
 Speed: slow
 Regularity and stability: high
 Flexibility: low, suitable with few of
 Reliability and safety: high goods
 Cost: relatively cheap because it does  Face to some restrictions due to the
not have to spend much on investment and ban in trans- countries
construction

Table 1.1. Comparison advantages and disadvantages of modes of transport

(1 is the best, 5 is the worst)
Rank Speed Carriage Ability Flexibility Freight/ cost

1 Air Sea Road Sea

2 Road Rail Rail Tube

3 Rail Road Air Rail

4 Sea Air Sea Road

5 Tube Tube Tube Air

1.4 Legal Status of International transportation

1.4.1. International road transport
A brief review of the international transport conventions by transport mode now follows
but it is stressed there is a lack of uniformity between the different conventions.
The Carriage of Goods by Road Act 1965, which came into force in 1967, notified and
enacted the provisions of the Convention on the International Carriage of Goods by Road

8
(CMR). The Convention represents an attempt by the principal European nations to regulate
the responsibilities and liabilities of carriers engaged in the international distribution of
goods by road. Consequently, the Convention applies throughout the entire duration of the
carriage, even if certain sections of the transit may be by sea, rail or air (although in the event
of loss, liability would be determined according to the particular requirements of the law
relating to the actual form of transportation involved, for example, Hague rules in respect of
shipments by sea). The Convention applies to goods passing through the Channel Tunnel
provided the merchandise remains on the road vehicle throughout.
Broadly speaking, the Convention applies to contracts for the carriage of goods in
vehicles for reward between termini situated in two different countries of which at least one
is a signatory to the Convention. At the present time, 45 countries have signed including all
EC members, except Eire, together with Austria, Bulgaria, Czechoslovakia, Finland,
Hungary, Norway, Poland, Romania, Sweden, Switzerland, CIS and Yugoslavia,… The
Convention does not govern carriage between the UK and Eire, or to internal sendings within
the UK, neither does it apply to postal sendings, funeral consignments, furniture removals,
and movement of own goods.
The contract of carriage is evidenced by a CMR consignment note, containing a
description of the goods, carriage charges, and any special provisions such as agreed values,
special interests, delivery instructions etc. The consignment note states that the Convention
is to apply, although it should be understood that the Convention would operate even if no
document at all was issued.
Briefly the CMR Convention provides that the carrier shall be liable for the total or
partial loss of the goods from time of receipt to time of delivery. In particular, the carrier is
conclusively liable for loss if the goods have not been delivered within 30 days from the
expiry of any agreed time limit, or 60 days after taking over the goods in the absence of such
limit. Moreover, the carrier is responsible for the acts of employees and agents, including
subcontracts.

9
 The carrier may be relieved from all liability if the loss is due to the wrongful act of the
claimant, inherent vice of the goods or through circumstances the carrier could not avoid or
prevent; but the onus of proof is on the carrier.
On the other hand, the carrier discharges the onus of proof it can be shown that the loss can
be attributed to:
(1) Permitted use of open unsheeted vehicles.
(2) Improper packing, marking and numbering.
(3) Handling operations undertaken by the cargo owner.
(4) Nature of the goods (ordinary breakage, leakage, wastage).
(5) Carriage of livestock.
In the event of loss or damage, the carrier’s liability is related to the market price of the
goods at the place and time at which they were accepted for carriage, but not exceeding 25
Gold Francs/kg of gross weight, plus carriage charges, Customs duties, and other charges
incurred in respect of the carriage of goods, which are totally lost, or in proportion of partly
lost or damaged. By arrangement between the carriers and consignor, a higher amount may
be substituted for the convention limit if a special interest or higher value has been agreed
between the parties. Should the consignee be able to prove that loss or damage has resulted
from delay the carrier is required to pay compensation not exceeding the carriage charges
(unless specially agreed).
In 1979 a protocol to CMR was promulgated by the EEC replacing the 25 Gold Francs
by SDR 8.33 per kilo. Nine countries have signed the protocol including the UK. This has
had the effect of increasing the carrier’s maximum liability. For example, taking the value
of the pound in terms for Special Drawing Rights from the Financial Times on 4 June 1993,
the conversion would be as follows:
1 kg = 8.33 SDRs
1 SDR = £ 1.0833
1 tonne = £9023.889

10
 Notwithstanding the above Limitations and immunities, the carrier is liable to pay full
compensation if the loss, damage or delay is caused by the willful misconduct or default of
the carrier of his servants or agents acting within the scope of their employment.
The Convention regulates the procedures to be followed concerning claims against the
carrier. The consignee must reserve the right to claim for any apparent damage not later than
the time of delivery. If the damage is not apparent, the consignee must give written notice of
damage within seven days. Claims for delay must be notified in writing within 21 days from
the time the goods were placed at the disposal of the consignee. Legal action must be brought
within a year but, in the case of willful misconduct, the period of limitation is extended to
three years.
Normally, the carrier in whose custody the damage occurred is liable to indemnify the
claimant but frequently responsible for loss or damage is difficult to determine. Furthermore,
action may be brought only against the first carrier, the last carrier or the carrier in whose
portion of carriage the loss occurred. The Convention, therefore, provides that the carrier
who has paid compensation is entitled to recover from other carriers who may be primarily
responsible, or alternatively, if liability cannot be determined accurately, responsibility may
be apportioned according to each carrier’s proportion of the total carriage charges and
recovery made accordingly. If a carrier becomes insolvent, the other carriers bear his
proportion of any outstanding claims.
From the exporter’s point of view, it will be noted that the opportunities for recovery of
losses sustained while goods are in road hauliers’ possession are quite extensive. The UK’s
accession to the EC has produced a dramatic increase in the volume and value of goods
consigned to the Continent. Sellers in this country who utilize the through transit facilities
now provided by hauliers should be fully aware both of their own and the carrier’s legal
position if rights of recourse are to be successfully pursued.
To conclude, under this Convention the carrier is liable for loss or damage from the time
he/she takes over until the time of delivery of the goods to the consignee, unless it can be
proved that the loss or damage occurred because of one of the list of excepted perils. In short,
these exceptions allow carriers to escape liability if they have not been negligent. Carriers

11
are also liable for delay if the goods have not been delivered within the agreed time limit or,
if there is no such agreement, within a reasonable time.
1.4.2. International rail transport COTIF/CIM
The international Convention concerning the carriage of goods by rail has existed in
some form since 1893. It permits the carriage of goods under one document, a consignment
note (not negotiable) under a common code of conditions.
The Convention is revised from time to time and the penultimate one was signed in Beme
in 1970 and called the CIM. This was subsequently revised and termed the COTIF
Convention, which became operative in May 1985 involving 34 countries of which the bulk
were European. Basically, it resulted in a revised version of the CIM Uniform Rules. It also
has an R.I.Co annex covering the movement of international rail-borne containers. It applies
to the maritime train ferry and conatiner services UK-Continent. The limitation of liability
for loss or damage is SDR17 per kilo and provision is alos made for loss due to delay.
1.4.3. International air transport
International carriage by air involves parties from different countries or territories. There
should be an international convention providing the unification rules concerning
international carriage by air.
• Warsaw Convention 1929
The first international convention on carriage by air was “Convention for the Unification
of Certain Rules relating to International Carriage by Air” signed in Warsaw in 1929 (also
known as Warsaw Convention 1929). The convention is aimed to unify the rules on
international carriage by air. The Warsaw Convention 1929 was established when
commercial aviation was at its early stage of development to provide the framework for
carriage of goods and passengers by air for the purpose of:
- Protecting air carriers from open-ended liability of the carrier in case of damage to or
loss of cargo or baggage and injury or death of passengers.
- Giving shippers and passengers an effective remedy against the carrier and an
opportunity to be compensated in case of loss of or damage to the goods, death or injured
passengers and their belongings.
12
The Warsaw Convention 1929 has been adopted by 151 States and came into effect on 13
February 1933. It was one of the most widely adopted international conventions.
• Hague Protocol 1955: Protocol to Amend the Warsaw Convention 1929 was done at
the Hague on 28 September 1955 (also known as the Hague Protocol 1955). The Hague
Protocol 1955 entered into force on 1 August 1963 and has been adopted by 136 States.
• Guadalajara Convention 1961: Convention supplementary to the Warsaw Convention
relating to international carriage by air performed by a person other than the contracting
carrier, was signed in Guadalajara on 18 September 1961 (also known as Guadalajara
Convention 1961).
Underlying the significance of the Guadalajara convention was the practice of code-
share agreements, whereby a contracting carrier would substitute his own performance of
part of the carriage by another carrier (actual carrier) without the agreement of the consignor.
Thus, the actual carrier is not a party to the contract of carriage with the consignor. In this
case, in order to extend the contracting carrier’s rights and liabilities under Warsaw
Convention 1929, as well as to make Warsaw Convention 1929 applicable to any non-
contracting actual carrier, the Guadalajara convention was adopted.
The Guadalajara Convention 1961 entered into force on 1 May 1964 and has been adopted
by 84 States.
 Guatemala Protocol 1971: Protocol to Amend the Warsaw Convention 1929, as
amended by the Protocol done at The Hague on 28 September 1955, was signed at Guatemala
City on 8 March 1971 (known as Guatemala Protocol 1971).
The Guatemala Protocol 1971 was agreed to amend the Warsaw- Hague Convention 1955
in relation with the monetary cap on the carrier's liability concerning passengers and their
luggage, but does not change the relevant provisions in relation to cargo. According to the
article XX, 30 ratifications are required for protocol to come into force. Until now there are
only 7 ratifications by Colombia, Costa Rica, Italy, the Netherlands, Togo, Greece and
Cyprus and the Protocol has not entered into force.

13
  Montreal Additional Protocols Numbers 1, 2, 3 and 4 of 1975
- Montreal Additional Protocol No. 1 to amend the Warsaw Convention was signed in
Montreal on 25 September 1975 (MAP 1 - 1975). MAP 1- 1975 entered into force on 15
February 1996 and has been adopted by 48 States;
- Montreal Additional Protocol No. 2 to amend the Warsaw Convention as amended by
the Protocol done at the Hague on 28 September 1955, was signed at Montreal on 25
September 1975 (MAP 2 - 1975). MAP 2 - 1975 entered into force on 15 February 1996 and
has been adopted by 49 States;
- Montreal Additional Protocol No. 3 to amend the Warsaw Convention, as amended by
the Protocol done at The Hague on 28 September 1955 and at Guatemala City on 8 March
1971, was signed in Montreal on 25 September 1975 (MAP 3 - 1975). Until now, both MAP
3 - 1975 and the Warsaw-Hague-Guatemala Convention 1971 have not entered into force,
as they have not been adopted by the required number of States;
- Montreal Additional Protocol No. 4 to amend the Convention for the Unification of
Certain Rules relating to International Carriage by Air, signed in Warsaw on 12 October
1929, as amended by the Protocol Done at the Hague on 28 September 1955, was signed at
Montreal on 25 September 1975 (MAP 4 - 1975). MAP 4 - 1975 entered into force on 14
June 1998 and has been adopted by 53 States.
• Montreal Convention 1999
In order to unify the fragmented liability regime of the Warsaw- system conventions,
Montreal Convention 1999 was adopted in Montreal on 28 May 1999. The Montreal
Convention 1999 entered into force on 4 November 2003. Until now, the convention has
been adopted by 102 States (ICAO, 2013).
a/ Scope of application of conventions
There are different legal regimes which may be applicable to a claim rising from the
international carriage of goods by air. These conventions are automatically applicable when
(1) the carriage by air is international and (2) the States of departure and destination are
Contracting States to the conventions.

14
 • Carriage is not covered by the international air conventions
Some types of carriage are either expressly excluded from the scope of application of
the international air conventions, or may be excluded if a contracting state makes a
reservation (subject to the conditions laid down) by declaring that the relevant international
air convention will not apply in certain circumstances.
The international air conventions do not in general apply to the carriage of mail and
postal packages. Article 2 of Warsaw Convention 1929 provides that it does not apply to
“Carriage performed under the terms of any international postal convention”. Article 2 of
Warsaw - Hague Convention 1955 provides that it does not apply to carriage of “mail and
postal packages”. Article 2 of MAP 4 Convention 1975 and Article 2 of Montreal
Convention 1999 provide that they do not apply to the “carriage of postal items”.
The Warsaw Convention 1929 does not apply to “carriage performed in extraordinary
circumstances outside the normal scope of an air carrier’s business” (Article 34), for example
in cases of carriage of cargo to a territory affected by hostilities.
The international air conventions also apply in case of international combined carriage
performed partly by air and partly by any other mode of carriage or when the carriage by air
will involve some ancillary transport by other modes providing that the parties to the contract
include a corresponding reference in the air waybill. However, if nothing is specified in the
air waybill, application of international air conventions may not apply to other modes of
transports. The application of international conventions to international carriage is exclusive
and mandatory.
b/ Period of liability
The period of the carrier’s responsibility usually starts when the cargo first came into the
carrier’s charge and should normally end when the goods have been delivered to the
consignee (during the time the goods are in charge of the carrier).
c/ Basis of liability
All the international air conventions define the liability of the air carrier for loss, damage
during air carriage and delay in delivery based on principle of presumption. That means, in

15
case of loss of or damage to the goods, it is presumed that the air carrier is liable and the
cargo-owner should not prove that the carrier was at fault.
Whereas there is a presumption that the air carrier is liable for any loss of or damage to cargo
and for delay, the are some defenses exempting the carrier wholly or partly from liability in
case of successfully proving that:
(1) Air carrier took “all necessary measures”. The carrier is not liable if he proves that he
and his agents have taken all necessary measures to avoid the damage or that it was
impossible for him or them to take such measures. However, the defense of “all necessary
measures” (the MAP 4 Convention 1975) and “all measures that could reasonably be
required” (the Montreal Convention 1999) is available only to a claim for damage caused by
delay in the carriage of cargo but not to all loss of or damage during air carriage.
In practice, the air carrier may be exempt from liability if he proves that it was impossible
for him/her to take such measures. For example, when a flight is prevented by an unexpected
disaster such as a volcanic eruption, the carrier would not be liable as it is impossible for
him/her to take measures to prevent such an event.
(2) The damage was occasioned by negligent pilot or negligence in the handling of the
aircraft or in navigation and that, in all other respects, he and his agents have taken all
necessary measures to avoid the damage (Article 20 (2) Warsaw Convention 1929).
The defense of “negligent pilotage” is introduced by the Warsaw Convention 1929 only. In
view of the considerable technological progress in air navigation equipment since the
Warsaw Convention 1929, the defense of “negligent pilotage” became unnecessary. Thus it
has not been reproduced in the other Warsaw-system Conventions and Montreal Convention
1999. It is only available in cases where the unamended Warsaw Convention 1929 applies.
(3) The damage was caused by or contributed to by the negligence of the claimant.
Under all of the international air conventions, the carrier is wholly or partly relieved from
liability if he/she proves that negligence of the claimant caused or contributed to the loss,
damage, or delay in question. There are, however, some differences between the relevant
provisions in the various international air conventions. The Warsaw Convention 1929 and

16
Warsaw-Hague Convention 1955 (Articles 21) provide that the carrier may be exempted
wholly or partly from liability if he proves that the damage “was caused by or contributed to
by the negligence of the injured person”. In the context of carriage of cargo, the negligence
must be attributable to the claimant, i.e. the consignor or the consignee.
The MAP4 Convention 1975 and the Montreal Convention 1999 provide that the carrier may
be exonerated wholly or partly from liability if he proves that “the damage was caused or
contributed to by the negligence or other wrongful act or omission of the person claiming
compensation, or the person from whom he derives his rights” (Article 2 MAP Convention
1975, Article 20 Montreal Convention 1999). “Other wrongful act or omission” appears to
refer to acts which are deliberate rather than negligent. For example, false declarations of
weight or content cause delay in customs clearance, or a knowing failure to provide
documents essential to avoid seizure of the cargo upon arrival by customs.
(4) Additional defenses in relation to the carriage of cargo such as:
- Under the Warsaw-Hague Convention 1955 the carrier is exempt in case of inherent
defect, quality or vice of the goods.
- Further, besides exemption for (a) inherent defect, quality or vice of the goods, the
MAP 4 Convention 1975 and the Montreal Convention 1999 add more 3 specific defenses
as follows: Defective packing of that cargo performed by a person other than the carrier or
servants or agents; An act of war or an armed conflict; An act of public authority carried out
in connection with the entry, exit, or transit of the cargo.
d/ Limitation of liability
The international air convention limits the air carrier’s liability for delay, loss, or damage
to cargo to a maximum amount per kilogram (monetary cap) unless the consignor has made,
at the time when the package was handed over to the carrier, a special declaration of the
value and has paid a supplementary sum, if so required. If a special declaration of value has
been made, the carrier’s liability may not exceed the declared sum, except if the carrier
proves that the consignor has declared a value which is greater than the actual value of the
package at delivery.
Limitation of air carrier for loss of or damage to cargo varies among ‘these conventions:

17
• The Warsaw Convention 1929 and the Warsaw-Hague Convention 1955: it is expressed
in the monetary unit of gold francs
250 gold francs per kilogram (Gold franc consisting of 65.5 milligrams gold of fineness
900/1000)
• The MAP 1, 2, 4 Conventions 1975 and the Montreal Convention 1999: 17 SDR per
kilogram
The international conventions do not set the special rules on the monetary limitation of
liability of the carrier in cases of delay. However, rules applicable to loss of or damage to
cargo apply to damage caused by delay.
e/ Notice of damage
In case of damage or delay to cargo, the person entitled to delivery or the claimant must
complain in writing to the carrier after the discovery of the damage within a specified number
of days from the date of receipt in case of damage or from the date on which the cargo should
have been delivered in case of delay. Different conventions set different time limit for
damage notification.
 Warsaw Convention 1929 stipulates:
+ In case of damage to goods: 7 days from the date of receipt
+ In case of delay: 14 days from the date on which the goods have been delivered
+ In case of loss and non-delivery of goods: no provision
 Warsaw - Hague Convention 1955 and MAP 4 Convention 1975 and Montreal
Convention 1999 stipulate:
+ In case of damage to goods: 14 days from the date of receipt;
+ In case of delay: 21 days from the date on which the goods have been delivered;
+ In case of loss and non-delivery of goods: No provision
There is no time limit specified by the international air conventions for loss, non-delivery
and claim for overcharges. Most of airlines set time limit for loss, non-delivery of goods and
for overcharges as follows:
In case of non-delivery of the cargo within 120 days from the date of issue of the air

18
waybill, or if an air waybill has not been issued, within 120 days from the date of receipt of
the cargo for transportation by the carrier.
Claims for overcharges must be made in writing to the originating or delivering carrier
within 180 days from the date of issue of the Air Waybill.
The timeline for claim is to provide the carrier with the opportunity to investigate the
facts and circumstances of the damage or delay, collect and retain the necessary documents
and information, and assess his/her potential liability. Failure to complain within the
specified number of days is prima facie evidence that the goods have been delivered in good
condition and in accordance with the documents of carriage. Failure to complain will prevent
the claimant from subsequently bringing an action against the carrier, except in cases where
there is fraud on the part of the carrier.
Claimant has two years to bring a court action, or arbitral proceedings claiming damages
against the carrier, from the date of arrival of the goods at their destination, or from the date
on which the aircraft ought to have arrived, or from the date on which the carriage stopped.
If more than one point is applicable, the latest in date is applicable. After the period of two
years, the claimant’s right to bring an action against the carrier is extinguished. International
conventions provide that method of calculating the period of limitation is determined by the
law of court seized of the case.
Claim: Where the air carriage involves successive carriers, the consignor or the
consignee can claim for loss of, damage to or delay of goods against: (1) the first carrier; (2)
the last carrier; or (3) the actual carrier during which the destruction, loss, damage or delay
took place.
Place of litigation: The litigation procedures are governed by the laws governing the
contract of carriage by air. All the international air conventions provide that an action for
damages may be brought in places connected with the carrier, but to be convenient for the
claimant. In relation to cargo, the claimant has the option to bring an action for damages in
the territory of one of the Contracting States to the applicable international air convention
before the competent court at one of the following four places:
- Where the carrier is ordinarily resident, usually the place of incorporation; or
19
 - Where the carrier has his principal place of business, usually the operational
headquarters; or
- Where the carrier has an establishment/business by which the contract has been made,
usually where the air waybill is issued;
- Or the place of destination, usually designated in the air waybill. Litigation by
arbitration
All the international air conventions provide that in case of carriage of cargo, arbitration
clauses are permitted, provided that the arbitral proceedings are brought in one of the four
optional jurisdictions specified, and provided the arbitrator or arbitration tribunal apply the
provisions of the international air conventions.
1.4.4. International sea transport
The international convention for the unification of certain rules of law relating to bills of
lading signed in Brussels on 25th August 1924 - Brussels convention 1924 or The Hague
Rules 1924. The Hague rules came in force in 1931 and until now it has been ratified by 90
countries.
The Hague rules as Amended by the Brussels Protocol 1968 - The Hague-Visby rules.
The protocol amended the Hague rules in 1968 in Brussels and came in force on 23rd June
1977. The amendment and the Hague rules create the new rules - The Hague - Visby Rules
1968.
The United Nations Convention on the Carriage of goods by sea 1978 - The Hamburg
convention or Hamburg rules. This convention came in force on lst November 1992.
Protocol (SDR Protocol) amending the International Convention for the Unification of
Certain Rules of Law relating to Bills of Lading of 25 August 1924 (The Hague Rules), as
amended by the Protocol of 23 February 1968 (Visby Rules) signed in Brussels on 21st
December 1979 and came in force in 1984.
All these conventions are applicable to international carriage of goods by sea with some
differences in their scope of application.
a/ The scope of application of the conventions
• The Hague rules
20
 The provision of these rules shall apply to every bill of lading relating to the carriage of
goods between ports in two different countries if the bill of lading is issued in a contracting
state. The provisions of this convention are not applicable to charter parties. However where
the bill of lading is issued pursuant to a charter - parties, the provisions of the convention
apply to such a bill of lading if it governs the relation between the carrier and the holder of
the bill of lading who is not the charterer.
• The Hague - Visby rules:
The provision of these rules shall apply to every bill of lading relating to the carriage of
goods between ports in two different states whatever nationality of the ship, the carrier, the
shipper, the consignee, or any other interested person may be if:
- The bill of lading is issued in a contracting state, or
- The carriage is from a port in a contracting state, or
- The contract contained in or evidenced by the bill of lading provides that these rules or
legislation of any State giving effect to them are to govern the contract;
Countries adopted the Hague -Visby rules are include Australia, Belgium, Denmark, Poland,
Egypt, France, Georgia, Finland, Ecuador, Singapore, Sri Lanka, Sweden, Italy, Japan,
Switzerland, Li bang, New Zealand, Netherland, Luxemburg, Spain, Syria, Norway, Mexico,
Tonga, United Arab Emirates.
 The Hamburg rules
The provisions of this Convention are applicable to all contracts of carriage by sea
between two different States, if:
- The port of loading as provided for in the contract of carriage by sea is located in a
Contracting State, or
- The port of discharge as provided for in the contract of carriage by sea is located in a
Contracting State, or
- One of the optional ports of discharge provided for in the contract of carriage by sea is
the actual port of discharge and such port is located in a Contracting State, or
- The bill of lading or other document evidencing the contract of carriage by sea is issued

21
in a Contracting State, or
- The bill of lading or other document evidencing the contract of carriage by sea provides
that the provisions of this Convention or the legislation of any State giving effect to them are
to govern the contract.
b/ The Period of Carrier's Responsibility
It is the period of time when the carrier is responsible for cargo damage.
• The Hague Rules and Hague-Visby Rules:
According to Article 1(e), this period lasts “from the time when the goods are loaded on the
ship to the time when they are discharged from the ship”. This classic rule is known as “from
tackle to tackle” - from the moment when a ship's tackle is hooked on at the loading port
until the moment when the ship's tackle is unhooked at discharge port. Thus, the carrier is
not responsible for damage, loss of cargo before the cargo is started to be loaded and after
unloading.
• The Hamburg rules:
In modern shipping practice carriers often take and retain custody of goods in ports, before
and after the actual sea carriage. Therefore, the Hamburg Rules is applied to the entire period
that the carrier is in charge of the goods at the port of loading, during the carriage and at the
port of discharge (according to Article 4.1 of the Hamburg Rules).
c/ Basis of Carrier's Liability:
This is the liability of the carrier for loss, damage or delay for the cargo.
• The Hague Rules and the Hague-Visby Rules: Carrier is liable for loss of and damage
to the cargo. Basis of carrier’s liability includes 3 obligations and 17 excuses / defences.
3 obligations of the carrier are as follows: (1) To ensure the ship’s seaworthiness; (2) To care
for the cargo; and (3) To issue a bill of lading where the shipper requests.
 3 Obligations:
- Obligation in respect of seaworthiness: The carrier has an obligation to exercise due
diligence to make the ship in all respects seaworthy so that it can properly carry the goods to
destination. The carrier shall be liable for loss or damage arising or resulting from
unseaworthiness caused by the want of due diligence. (Article III paragraph 1)
22
- Obligation in respect of the cargo: Article III paragraph 2 provides that “subject to the
provisions of Article IV, the carrier must properly and carefully load, handle, stow, carry,
keep, care for and discharge any goods carried”.
- Obligation to issue a bill of lading: Article III paragraph 3 provides that “after receiving
the goods into his charge, the carrier, the master or the carrier’s agent must, if the shipper
demands, issue a bill of lading to the shipper showing, amongst other things”
 17 excuses:
Neither the carrier nor ship will be responsible for loss or damage arising or resulting from…
(Article IV paragraph 2)
 The Hamburg rules
Carrier is liable for loss of and damage to the cargo and delay in delivery. Carrier's
liability under the Hamburg Rules is based on presumed fault.
c/ Limits of Liability
Limit of liability is the monetary limitation of liability of the carrier in case when the
cargo value is not declared and stipulated on the Bill of lading. Limitation of liability of the
carrier varies under different conventions.
• The Hague Rules:
The limits of liability for the carrier are 100 pounds sterling (GBP) per package or unit
unless the nature and value of goods have been declared by the shipper before shipment and
inserted in the bill of lading.
A unit is what is described as a “unit” in the bill of lading. It can thus be a unit of volume
or a unit of weight as used for the calculation of the freight.
• The Hague-Visby Rules:
The limits of the liability of the carrier for the loss of or damage to the goods reach an
amount equivalent of 10,000 francs per package or unit or 30 francs per kilo of gross weight
of the goods lost or damaged, whichever is the higher. A franc means a unit consisting of
65.5 milligrammes of gold of fineness 900/1000 (Article 2).
Where a container, pallet or similar article of transport is used to consolidate goods, the
number of packages or units enumerated in the bill of lading as packed in such article of
23
transport shall be deemed the number of packages or units for the purpose of this paragraph
as far as these packages or units are concerned. Except as aforesaid such article of transport
shall be considered the package or unit.
• The SDR protocol:
Limits the liability of the carrier for the loss of or damage to the goods to an amount
equivalent to 666.67 SDR per package or other shipping unit, or 2 SDR per kilogram of the
gross weight of the goods lost or damaged, whichever is higher, unless the nature and value
of the goods have been declared by the shipper and inserted in the bill of lading or a higher
limit has been agreed upon between the carrier and the shipper.
• The Hamburg Rules: (According to article 26)
+ For damage, loss of cargo: Limits of the liability of the carrier for the loss of or damage
to the goods reach an amount equivalent of 835 SDR per package or other shipping unit or
2.5 SDR per kg of gross weight, whichever is higher. For those countries that are not member
of The International Monetary Fund (IMF), carrier's liability is limited to an amount equal
to 12,500 MU per package or unit or 37,5 MU per kilo of gross weight of the goods lost or
damaged, whichever is the higher. A MU means a Monetary Unit equivalent to 65.5
milligrammes of gold of fineness 900/1000.
+ For delay: Carrier's liability is limited to an amount equivalent to 2.5 times of the freight
payable for the goods delayed but not exceeding the total sum of the freight payable under
the respective contract of carriage by sea.
+ Where a container, pallet or similar article of transport is used to consolidate goods, the
package or other shipping units enumerated in the bill of lading as packed in such article of
transport are deemed packages or shipping units. Except as aforesaid the goods in such article
of transport are deemed one shipping unit.
+ In cases where the article of transport owned by cargo owner has been lost or damaged,
that article of transport is considered one separate shipping unit.
d/ Time frame for notice of loss or damage
 In case of visible damage:
The Hague and the Hague Visby rules: a notice of loss must be given immediately upon

24
 taking delivery of the goods.
The Hamburg rules: within 1 working day after the discharge is completed.
 In case where the loss or damage is not apparent:
A notice of loss must be given to the carrier or carrier’s agent within:
The Hague and the Hague Visby rules: three (3) days of delivery
Hamburge rule: 15 consecutive days of delivery
 Delay in delivery:
Hague rules 1924 and Hague Visby rules 1968: the carrier is not liable for delay in
delivery.
Hamburg rules 1978: no compensation shall be payable for loss resulting from delay
in delivery unless a written notice has been given to the carrier within 60 consecutive
days after the day when the cargo was handed to the consignee.
 Loss of cargo.
Hamburg rules the consignee should send a written notice to the carrier within 90
consecutive days after the discharge was completed/ the occurrence of such loss.
 Time bar for claims:
Hague rules: 1 year of delivery
Hague Visby rules: 1 year of delivery and a possibility of extending the time bar
Hamburg rules: 2 years of the date of delivery and a possibility of extending the time bar.
 Jurisdiction and Arbitration
Hague and the Hague Visby rules: do not specify jurisdiction and arbitration.
Hamburg rules: disputes arisen can be solved by jurisdiction or arbitration
• Jurisdiction:
The plaintiff at his option may institute an action in a court, which according to the law
of the country where the court is situated, is competent and within the jurisdiction of which,
is situated one of the following places:
- The principle place of business or, in the absence thereof, the habitual residence of the
defendant; or
- The place where the contract was made provided that the defendant has there a place

25
of business, branch or agency through which the contract was made, or
- The port of loading or the port of discharge; or
- Any additional place designated for that purpose in the contract of carriage by sea.
 Arbitration:
The arbitration proceedings shall, at the option of the claimant, be instituted at one of the
following places:
- A place in a country within whose territory is situated:
- The principal place of business of the defendant or, in the absence thereof, the habitual
residence of the defendant; or
- The place where the contract was made, provided that the defendant has there a place
of business, branch or agency through which the contract was made; or
- The port of loading or the port of discharge; or
- Any place designated for that purpose in the arbitration clause or agreement.

Revision questions:
1. Present the advantages and disadvatages of different modes of transport.
2. Which conventions govern the carriage of goods by sea? Which is most beneficial for
cargo owner? Which is most beneficial for shipowner?
3. Which conventions govern the carriage of goods by air?
4. Which conventions govern the carriage of goods by rail?
5. Which conventions govern the carriage of goods by road?
6. Which conventions govern the carriage of goods by multimodal transport?

26
 CHAPTER 2: THE EXPORT AND SHIPPING OFFICE
2.1. The export office role
Exporting today is a highly skilled and professional operation. To be successful in this
field requires an adequate and cost effective organization designed to enlarge the company
product market share overseas. Above all, the exporting results must be profitable and,
accordingly, it is most desirable that the export personnel are of a high calibre, with language
proficiency, adequately qualified and rewarded, to attain this objective. The size of the
company, its products, and scale of export business will largely influence the form of export
organization. Moreover, cognizance must be taken of company structure and organization,
and how the export role can best be injected into it. In broad terms, the industrial company
has three functions - production, finance and sales. Additionally, there are various other
subsidiary activities which significantly contribute to the running of the company, which
include personnel, administration, research/development, training, purchasing, etc.
If the company is rather small with only an element of export business, it is likely that
an export manager with a secretary and a clerk would be adequate but, as the export trade
grows, it will soon become necessary to have a properly structured export organization with
qualified specialist staff designed to exploit the export trade potential. One can no longer
rely on inexperienced unqualified personnel in the export field (whether it be marketing,
sales, or shipping), as standards will tend to be low, overseas product reputation poor and
the overall financial results probably very indifferent. Exporting is a highly professional
activity which is increasing annually in terms of its overseas market competition.
The export department has two main functions: marketing and shipping. The former is
responsible for sales, pricing enquiries, quotations, recording and checking orders, and other
marketing functions such as promotion, research etc, whilst the latter is responsible for
transportation/distribution and the relevant documents involved, packaging, costings for
distribution etc. There must be at all times close liaison with the accounts department
particularly on credit audit and control, costings and financial documentation/information.
Overall, the export department objective is to ensure that the export order processes smoothly
from start to finish to obtain complete customer satisfaction and produce a modest profit to
27
the company. All the aspects of an export operation are interlinked with clearly defined
functions and responsibilities of either a horizontal or a vertical export department
organization with efficient and well trained specialist and professional staff.
2.2. The export office organization and structure
The smallest export department may consist of an export manager, shipping clerk, typist
and accounts clerk. At first, the department may be engaged merely in shipping orders
secured by the sales organization, but as the export trade develops the department will
enlarge and have its own sales organization, attend to their shipment and collect payment.
Hence, it will become a self-contained department.
In such circumstances, the overall aim of the export department is to collect sufficient
data to enable them to quote promptly and accurately a competitive CIF, or other delivery
term price for any consignment. This involves an evaluation of the most suitable method of
dispatch and requires knowledge of rates, services, routes, terminal charges, insurance,
packaging, documentation and so on.
The department must study the needs of different markets, their trends and likely future
developments together with possible methods of increasing overseas sales. This involves the
scrutiny of overseas agents and branch reports and provision of adequate publicity by
overseas journals/publications. Additionally, close liaison must be maintained with trade
associations and relevant Government departments on overseas market development
opportunities.
Moreover, a continuing dialogue must be maintained with overseas representatives on
all developments at home. This involves manufacturing and technical aspects of the
commodity, distribution methods and future developments (e.g. a new product range). Such
an exchange of information is vital to the future well-being of the company, and any reports
indicating shortcomings in product, distribution, inadequate packing, faulty products etc.
should be acted on quickly and remedial measures taken.
The export department has the task not only of obtaining and executing the export orders,
but also of ensuring payment is received without undue delay in accord with the terms of
sale as prescribed in the export contract. Enforcement of rights in foreign courts of law is

28
often a troublesome business and tends to create a bad public image for the company. It is
prudent to liaise closely with and/or use the export services provided by banks and the credit
insurance companies on financial matters.
In the larger export-oriented company a greater degree of specialization is essential
which usually involves the appointment of an export marketing manager, an export sales
manager, and a shipping manager each with defined responsibilities. In the small to
medium—sized firm, an export manager is usually found dealing alone with all sections of
his company’s export business. In the larger firm, on the other hand, the work is split up
between the three appointments in the following manner:
(1) The export marketing manager has overall executive control usually under an export
marketing director. He controls and co-ordinates the activities of the other two functions,
deals with policy, and usually represents the export department at internal sales conferences.
(2) An export sales manager is generally responsible to the export marketing manager and in
a limited way is involved with sales inasmuch as he controls the agents and representatives
and promotes actual sales to customers everywhere. His job is done when the export order is
obtained and passed on to the export office for issuing to the factory or, in the case of a
merchant, to the manufacturer. This involves the following stages:
(i) Receiving the enquiry, ascertaining its feasibility, ensuring that the price is calculated and
preparing the quotation.
(ii) Ascertaining the despatch date by the specified mode of transport.
(iii) Obtaining sanction of credit controller and approval of quotation before it is sent to the
customer.
(iv) Ensuring the quotation is sent to the customer and following it up, initiating
investigations into orders presumed to be lost.
(v) Receiving the order from the customer and checking it against the quotation. Where the
order is received without earlier quotation much of (i)-(iii) has to be done at this time.,
(vi) Obtaining production controller’s sanction, priority rating and credit controller’s
permission (if applicable).
(vii) Acknowledging the order and informing the local agent (if necessary) of the order.

29
(viii) Arranging for the preparation and issue of the works order.
(ix) Informing records or statistics department of the details of the order.
(x) Confirming date of despatch to clients, agents or distributors and notifying any
unavoidable changes.
(xi) Progress chasing.
(xii) Handing over the order to the shipping department to arrange the delivery procedure.
(Overall one can conclude by saying the export sales office function is to deal with enquiries
and orders up to the point of despatch.)
(3) The export shipping manager is informed of any orders booked usually by a copy order
and later receives definite notice from works/manufacturer when the goods are nearing
completion. This involves the following stages:
(i) Linking with export sales, checking that the order complies with import/ export controls
and establishing from letters of credit relevant details of items which have to be reconciled
with the ultimate forwarding arrangements.
(ii) Deciding on the method of transportation (if not already specified).
(iii) Issuing instructions for packing and marking (if not already given).
(iv) Chartering or booking shipping (or air) space.
(v) Pre-entering at Customs (if necessary).
(vi) Issuing instructions to works, transport office, and freight forwarders.
(vii) Drawing up all the necessary documents and later collecting, collating and cross-
checking all documents after shipment.
(viii) Passing documents to accounts department for collection of payment.
The export shipping function normally commences when the works order is issued and
takes over fully when the goods ordered have been produced and are read for despatch. It is
a section where a sense of urgency is essential. The Shipping Manager is responsible for
obtaining shipping or air freight space, arranging despatch, documentation, insurance,
possibly packing and Customs clearance.

Revision questions:

30
1. Present the export office role of an export company which you know.
2. Draw and present the organizational struture and functions of an export office in a
conmpany which you know.

31
 CHAPTER 3: CARRIAGE OF GOODS BY SEA
3.1. Technical bases for sea transport
3.1.1. Maritime routes
There are continents that are linked by seas and oceans: Asia, Africa, North America,
South America, Europe, Antarctica and Australia. There is potentially an infinite number of
maritime shipping routes that can be used for commercial circulation. Main maritime routes
are composed of oceans, coasts, seas, lakes, rivers and canals. The constructions of canals
are attempts to facilitate maritime circulation by reducing discontinuity. The main axis is a
circum-equatorial corridor linking North America, Europe, and Pacific Asia through the
Suez Canal, the Strait of Malacca, and the Panama Canal. These routes are supporting the
bulk of the traffic, but numerous other routes are existing (namely for coastal shipping),
depending on the origin and the destination of the maritime shipment. Due to the location of
economic activities main maritime circulation takes place on specific parts of the maritime
space. Transatlantic and transpacific traffic concerns a wide variety of ports, so there are
numerous routes, most of them having a path along the great circle. Trans-Indian ocean
traffic is dominantly intermediary traffic between Pacific Asia and Europe, implying a series
of more clearly defined routes, namely between the Strait of Malacca and Bab el-Mandab.
Physical constraints (coasts, winds, marine currents, depth, reefs, ice) and political
borders also play an important role in shaping maritime routes. Core routes are those
supporting the most important commercial shipping flows servicing major markets.
Secondary routes are mostly connectors between smaller markets. In part due to geography,
geopolitics and trade, flows specific locations play a strategic role in the global maritime
network. They are labeled as chokepoints and can be classified into two main categories:
 Primary chokepoints: The most important since without them there would be limited
cost-effective maritime shipping alternatives, which would seriously impair global trade.
Among those are the Panama Canal, the Suez Canal, the Strait of Hormuz and the Strait of
Malacca, which are key locations in the global trade of goods and commodities.

32
  Secondary chokepoints: Support maritime routes that have alternatives, but would
still involve a notable detour. These include the Magellan Passage, the Dover Strait, the
Sunda Strait, and the Taiwan Strait.

Figure 3.1: Main Maritime Shipping Routes

Threrfore, two types of waterways are important in shipping: natural waterways such as
rivers, estuaries and creeks and man-made waterways which are usually called canals.
- Natural waterways provide the shelter from the weather that ships need when
loading and discharging. Many towns and cities began as ports. Some typical examples are
Buenos Aires - River Plate, Hamburg - River Elbe, Calcutta - Hooghly River Lisbon -River
Tagus, Montreal - River St Lawrence and Philadelphia - Delaware River.
- Man-made waterways are constructed for one of two reasons: to reduce sailing time
on a regularly used route or to provide access to an inland region. There are some famous
man-made waterways:
+The St Lawrence Seaway, linking Chicago and Duluth in the USA and Fort William in
Canada which gives direct access to the vast grain producing areas in the centre of the North
American Continent. Previously the St Lawrence was only navigable up to Montreal, it then
Currently, the seaway extends from Montreal, Quebec, to Lake Erie and includes
the Welland Canal with the length of 370 miles (600 km). Ships with maximum dimensions
of 225.6 meters LOA (length overall) and 23.8 meter beam (78 feet), and 26.5 ft (8.1 m) deep
can be accommodated. Therefore, the maximum size of the ships able to enter the Seaway is
about 30,000 tons deadweight, although there are some long and thin ships up to 35,000 tons
33
specially built called “Maxi lakers”.

Figure 3.2. St Lawrence seaway

+The Panama canal linking the Pacific ocean and the Atlantic ocean.
Transship via the Panama canal shorten route for 7,800 miles or 12,500km. About 14,000
ships transit the canal every year (more than 300 millions of tons of cargo), with an average
of 40 ships per day and with an average transit time of about 16.5 hours if the passage has
been reserved in advance and about 35 hours if no reservations have been made.
Containers, grains and petroleum account for the dominant share of the cargo transited.
The biggest ships transiting through the Panama canal is the Panamas standard, which equals
to 65,000 deadweight tons, a draft (or draught) of 12 meters and a capacity of about 4,500
TEUs depending on the load configuration. Panamas ships have LOA of 294 meters, width
of 32.3 meters and draught of 12.04 meters. For accommodation post panama ships with 366
meters in length, 49 meters in width and 15 meters of draught, the Panama government
approved the widening of the Canal that started in late 2007 and completed, put in use in
2016 with 55 meters in width, 18 meters of draught.

34
The canal handles about 5% of the global seaborne trade and about 12% of the American
international seaborne trade. The toll is about US$5.0 per ton (equal 2.83 cubic meters),
minimum tolls based upon ship’s length overall2.
Table 3.1: Minimum tolls / ship going through Panama canal
Length of vessel Toll
Up to 15.240 meters (50 ft) US$800
More than 15.240 meters (50 ft) up to 24.384 meters (80 ft) US$1,300
More than 24.384 meters (80 ft) up to 30.480 meters (100 ft) US$2,000
More than 30.480 meters (100 ft) US$3,200

Figure 3.3. Panama Canal

+ The Suez canal. The Suez Canal is about 190 km in length connecting the
Mediterranean Sea with the Gulf of Suez - an arm of the Red Sea. It is the world's longest
canal without locks. It acts as a shortcut for ships between both European and American
ports and ports located in southern Asia, eastern Africa, and Oceania. Because of obvious

2
https://en.wikipedia.org/wiki/Panama_Canal#Tolls

35
geographical considerations, the maritime route from Europe to the Indian and Pacific oceans
must contour the Cape of Good Hope at the southernmost point of the African continent.
Route via the Suez canal shorten travel distance from Asia to Europe for 5,100 miles or 8,200
km.
When built, the canal was 164 km (102 miles) long and 8 meters (26 ft) deep. After the
enlargement of 2015, it is 193.30 km (120.11 miles) long, 24 meters (79 ft) deep and 205
metres (673 ft) wide.
The canal can accommodate ships as large as 240,000 deadweight tons fully loaded. The
canal can handle more traffic and larger ships than the Panama Canal 3.
Suez Canal is “a main artery for global seaborne merchandise trade.” Some 8.3 percent of
the global trade pass through the canal, as well as 25 percent of global containerised goods
and 100 percent of seaborne container trade between Europe and Asia 4. The Suez Canal
accommodated 18,880 ships with a net tonnage of 1.2 billion tons and revenues of toll 5.8
billion USD during 2019.

Figure 3.4: Suez canal

https://en.wikipedia.org/wiki/Suez_Canal#:~:text=When%20built%2C%20the%20canal%20was,metres%20(6
73%20ft)%20wide.
4
https://www.hellenicshippingnews.com/egypts-suez-canal-authority-announces-5-toll-increase-for-lpg-and-
dry-bulk-carriers/

36
3.1.2. Sea ports
3.1.2.1. Definitions, functions and task of the sea ports
 Definitions
Seaport is an area covering port land and port waters where facilities are built and
equipment is installed for seagoing vessels’ navigation and operation for loading and
unloading cargoes, embanking and disembarking passengers and providing other services.
Port land is a delimited land area for the construction of wharves, warehouses, storage yards,
workshops, office building, service facilities, road, information and communication,
electricity and water systems and other aids and for the installation of equipment.
Port waters is a delimited water area for the establishment of waters in front of wharves,
area for vessel’s maneuvers, area for anchorage, area for lighterage, storm-shelter area, area
for embarking and disembarking of pilots, quarantine area, area for fairways, and other aids.
A seaport may have one or more harbors. A harbor may have one or more wharves. A
harbor consists of wharves, warehouses, storage yards, workshops, office buildings, service
facilities, road, information and communication, electricity and water systems, entrance
channels, and other aids. A wharf is a fixed structure in a harbor, used for seagoing vessel’s
anchorage, loading and unloading of cargoes, embarking and disembarking of passengers,
and provision of other services.
Many ports have become the location for industrial clusters. Industrial clusters are
geographic concentrations of private companies that may compete with one another or
complement each other as customers and suppliers in specialized areas of production and
distribution. Industrial clusters represent a kind of value chain, a web of interrelated
activities that are mutually supportive and continuously growing. Clustering of related
activities improves the competitive advantage of cluster participants by increasing their
productivity, reducing transaction costs among them, driving technological innovation, and
stimulating the formation of new business spin-offs.
 Port Functions
Within the port system, one or more organizations fill the following roles:
- Landlord for private entities offering a variety of services.
37
 - Regulating economic activity and operations.
- Regulating marine safety, security, and environmental control.
- Planning for future operations and capital investments.
- Providing nautical services and facilities.
- Marketing and promoting port services and economic development.
- Cargo handling and storing.
- Providing ancillary activities.
Port authorities often have broad regulatory powers relating to both shipping and port
operations. The authority is responsible for applying conventions, laws, rules and regulations
regarding public safety and security, environment, navigation and health care. Port
authorities also comprise many rules and regulations with respect to the behavior of vessels
in port, use of port areas and other issues.
The cargo handling and storage function comprises all activities related to loading and
discharging seagoing and inland vessels, including warehousing and intra-port transport. A
distinction typically is made between cargo handling on board of the vessel (stevedoring)
and cargo handling on shore (landside or quay handling). Terminal operators can fulfill both
roles. There are typically two types of cargo handling and terminal operating firms. The more
common structure for terminal operating firms is a company that owns and maintains all
superstructures at the terminal (for example, paving, offices, sheds, warehouses, and
equipment). Other firms only use the superstructure or equipment that is owned by the port.
Such firms typically only employ stevedores or dock workers and have virtually no physical
assets.
A variety of ancillary functions such as pilotage, towage and ship chandlering, fire
protection services, linesmen services, port information services, and liner and shipping
agencies exist within the port community.
3.1.2.2. Classification of ports
There are service, tool, landlord and fully privatized ports (World Bank Transport
Division).

38
  Service Ports
Service ports have a predominantly public character. Among the main functions of a
service port there are cargo handling activities. In some developing country ports, the cargo
handling activities are executed by a separate public entity often referred to as the cargo
handling company. Such public companies usually report to the same ministry as the port
authority.
 Tool Ports
In the tool port model, the port authority owns, develops, and maintains the port
infrastructure as well as the superstructure, including cargo handling equipment such as quay
cranes and forklift trucks. Port authority staff usually operates all equipment owned by the
port authority. Other cargo handling on board vessels as well as on the apron and on the quay
is usually carried out by private cargo handling firms contracted by the shipping agents or
other principals licensed by the port authority. This arrangement has generated conflicts
between port authority staff and terminal operators, which has impeded operational
efficiency. Under a tool port model, the port authority makes land and superstructures
available to cargo handling companies. The lack of capitalization of the cargo handling
companies constituted a significant obstacle to the development of strong companies that
could function efficiently in the port and be able to compete internationally.
 Landlord Ports
The landlord port is characterized by its mixed public-private orientation. Under this
model, the port authority acts as regulatory body and as landlord, while port operations
(especially cargo handling) are carried out by private companies. Today, the landlord port is
the dominant port model in larger and mediumsized ports. In the landlord port model,
infrastructure is leased to private operating companies or to industries such as refineries, tank
terminals, and chemical plants. The private port operators provide and maintain their own
superstructure including buildings (offices, sheds, warehouses, container freight stations,
workshops). They also purchase and install their own equipment on the terminal grounds as
required by their business. In landlord ports, dock labor is employed by private terminal
operators, although in some ports part of the labor may be provided through a portwide labor
39
pool system.
 Fully Privatized Ports
Fully privatized ports (which often take the form of a private service port) are few in
number and can be found mainly in the United Kingdom (U.K.) and New Zealand. It suggests
that the state no longer has any meaningful involvement or public policy interest in the port
sector. This requires the transfer of ownership of port land from the public to the private
sector. In addition, along with the sale of port land to private interests, some governments
may simultaneously transfer the regulatory functions to private successor companies. In the
absence of a port regulator in the U.K., for example, privatized ports are essentially self-
regulating. The risk in this type of arrangement is that port land can be sold or resold for non-
port activities, thereby making it impossible to reclaim for its original maritime use.
Moreover, there is also the possibility of land speculation, especially when port land is in or
near a major city. Furthermore, sale of land to private ports may also sometimes raise a
national security issue.
3.1.3. Means of transport – merchant ships
3.1.3.1. Technical features of ships
a/ Definition of a merchant ship
Merchant ship is any ship used for transporting cargoes and passengers for commercial
purpose (The Bremen Institute of Shipping Economics and Logistics). According to this
definition merchant ships include only ships used for transporting cargoes and passengers.
Other ships such as military, fishing and researching ships are not considered merchant ships.
b/ Specifications of merchant ships
 Draught
Draught is the vertical distance between a ship’s waterline and the lowest point of its
keel. Draught is the depth in the water to which a ship sinks according to its load. Draught is
measured in foot or meter (1 foot = 0.3048 m). Draught changes depending on cargo load,
season and the water zone. The more cargo (weight) the ship loads, the deeper the ship will
lay in the water, the greater her draught. There are two types of draught:
- Maximum or loaded draught: occurs when the ship is loaded to its full capacity.
40
 - Minimum or light draught: occurs when the ship is unloaded all cargoes.
A ship’s deadweight is determined by its load line or Plimsoll mark. Load lines are the
deepest draught to which a ship could be loaded and drawn on the starboard side of the
ship. The load lines are determined in accordance with an internationally established
formula. The decision as to where the load lines shall be situated is made at the time the
ship is constructed and the decision process is overseen by the ship’s classification society
which issues the Load Line Certificate and supervises the placing of the load lines.
Draught changes depending on the season and water zone. In summer the draught is
greater as water in summer has less buoyancy. Salt sea water provides more buoyancy to
a ship than the fresh water so that if the ship loads in fresh water she may be loaded to a
deeper draft as she will rise up to the correct draught when reaching the ocean. For these
reasons a ship’s loadline can have as many as six marks as illustrated bellow:

In which:
TF are load lines in fresh water and T, S, W, WNA are load line at salt water.
 Displacement tonnage
Displacement tonnage is a weight of the ship equal to the weight of water that it displaces
(measured in long tons of 2240 pounds or metric tons of 1000 kg). This is the actual weight
of the ship.
Displacement is counted from the formula:
D = M (measured in cubic feet) : 35 or
D = M (measured in cubic meter ) x specific weight of water
In which:
D - Displacement
41
 M - Volume of the water that the ship displaces measured in cubic foot or cubic meter.
There are two types of displacement:
- Light displacement: the weight of the ship before loading cargoes and all items such
as passengers, fuel, water, stores, dunnage and such other items necessary for use on a
voyage. Light displacement includes actual weight of empty ship, equipment, crew members
and their luggage.
- Loaded displacement/Heavy displacement: the total weight of the ship and all that it
is carrying. Loaded displacement is equal light displacement plus weights of fuel, fresh
water, stores, dunnage and such items necessary for the intended voyage and the weight of
commercial cargo loaded into the ship.
 Carrying capacity
Carrying capacity is the capacity of the ship to carry things. There are two kinds of
carrying capacity:
- Deadweight capacity (DWC): equal to total weight of cargoes, bunker, fuel, stores,
fresh water, supply, equipment etc. DWC is a difference between heavy displacement (HD)
and light displacement (LD). DWC = HD – LD
- Deadweight Cargo Capacity (DWCC): capacity of the ship to carry commercial
goods. Deadweight cargo capacity is the difference in tons between deadweight capacity and
the weight of fuel, stores, fresh water, equipment etc. In practice the operator may increase
the DWCC by carrying less bunkers.
 Register tonnage
Register tonnage is the volume of enclosed space in the ship calculated on the basis of
cubic meter, cubic foot or a register ton. Register ton is a measurement of cargo capacity in
cubic feet. One register ton is equivalent to 100 cubic feet or 2.83 cubic meter. There are 2
type of register tonnage:
- Gross register tonnage: is calculated based on the volume of all enclosed space. GRT
is used to determine things such as a ship’s manning regulations, registration fees and
number of crew, safety equipment on board and sanitation practices.

42
 - Net register tonnage (NRT): is a volume of enclosed space for storing the cargo. NRT
is equal to ship’s gross register tonnage deducting spaces occupied by accommodation for
crew, by machinery, for navigation, by the engine room and fuel, ballast etc.
 Cargo space
Capacity of the cargo holds depends on whether cargoes are transported in bale or not.
There are two types of cargo space:
- Bale space or Bale capacity: is capacity of the ship’s hold for bale cargo. Because
bale cargo or materials could not occupy the awkward corners, bale space does not include
this space.
- Grain space or grain capacity: is equal to 105 or 110% of the bale space as grain
flows into all the spaces in the holds.
 Coefficient of loading - CL
A ship’s coefficient of loading (CL) is the ratio between cargo space (CS) measured in
cubic feet or cubic meter and deadweight cargo capacity (DWCC) measured in long ton or
( )
short ton or metric ton. 𝐶𝐿 =
( , )

Corresponding to two kinds of cargo space are two coefficients of loading. They are
coefficient of loading of bale cargo and coefficient of loading for grain.
Ship’s coefficient of loading indicates the average cargo space per one unit of DWCC.
 Stowage Factor - SF
Every cargo has its own density which for the purpose of shipping is referred to as the
stowage factor. SF is the ratio between the volume and the weight of the cargo. It reflects the
volume in cubic foot or in cubic meter that one ton of cargo displaces. SF varies to the type
of cargo. Heavy cargoes have small SF and light cargoes have higher SF.
In order to utilize both space and cargo carrying capacity of the ship, cargo loaded should
have SF equal to ship’s coefficient of loading. In cases where different cargoes are loaded,
cargoes should satisfy the following formulas:
X+Y+… = DWCC
X. SFx + Y. SFy+… = CS
43
 In which:
X, Y: weight of cargoes X, Y
sfx: Stowage factor of cargo X ; sf y: Stowage factor of cargo Y
DWCC: Deadweight cargo capacity of the ship
CS: cargo space of the ship
 Dimension of the ship
- Length over all (LOA) is the maximum length of a ship’s hull measured parallel to the
waterline. This length is important while docking the ship. It is the most commonly used way
of expressing the size of the ship or for calculating the cost of port’s berth.
- Beam: The width of the broadest part of a ship. Beam is important while transiting
through canals with limited width.
 Ship registration
Ship can be registered at the country where the ship owner has the nationality or in
foreign country. International law requires that every merchant ship be registered in a country
and fly the flag of its country of registry. Thus all seagoing ships have a nationality and flag
showing which country she belongs to. Open registry is the business practice of registering
a merchant ship. Those countries allowing foreign ships to be registered are open registry
countries. In fact a ship’s register gives an actual port of registry. The same port is printed
beneath the ship’s name across the stern and the ship flies. A ship must operate under the
laws of its state of registry.
The main reason for choosing an open register is to reduce registering fees, operating
costs or avoid the regulations of the owner’s country such as taxes, labor or environment,
avoid economic and political sanctions and have the ability to hire crews from lower - wage
countries. This business practice of registering a merchant ship in foreign country began in
the 1020s in the United State, when ship owners frustrated by increased regulations and
rising labor costs from their laws and began to register their ships in Panama.
A merchant ship is registered in ship owner’s country will fly “national / conventional flag
A merchant ship is registered in foreign country will fly “flag of convenience”.
Currently, the top five shipowning economies were Greece, Japan, China, Singapore
44
and Hong Kong China, accounting for more than 50 per cent of the world’s tonnage.
More than 70 per cent of the fleet (tonnage) is registered under a foreign flag.
Table 3.1. Ownership of world fleet ranked by dead-weight tonnage, 2019

Source: Review of maritime transport, 2019

Table 3.2. Top 5 of leading flags of registration by dead-weight tonnage, 2019

Source: Review of maritime transport, 2019

 Ship classification
Classification is a certificate of quality of the ship. Classification is provided by
Classification Societies. These classification societies publish rules and regulations which
are principally concerned with the strength of the ship, the provision of adequate equipment,
and the reliability of the machinery. Ships may be built in any country in accordance with a
particular classification society’s rules, and they are not restricted to classification by the
relevant society of the country where they are built. Classification is not compulsory but the
shipowner with an unclassified ship will be required to satisfy governmental regulating
bodies that it has sufficient structural strength for assignment of a load line and get a safety

45
construction certificate.
Each classification society set their own standards and regulations for designing and
construction of the ship. To maintain classification, a ship must undergo periodical surveys
which include inspections afloat and in dry dock. A special survey has to take place every
four years (or 5 years if the ship is on a continuous survey cycle). Each special survey tends
to become more rigorous as the ship ages. All parts of the ship are subject to survey: the
hull, machinery, boilers.
Class societies are linked to the conditions of the ships that they class. The Port State
Control authorities actually target ships for inspection based on their classification.
Numbers of bad records reflect the reputation of the classification society. The largest and
most reputable societies are all members of the International Association of Classification
Society (LACS), including 12 members: ABS (US of A), Bureau Veritas (France), CCS
(China), CRS (Croatia), DNV GL (Germany), IRS (India), KR (South Korea), LR (UK),
Class NK (Japan), PRS (Poland), RINA (Italy), RS (Russia).
3.1.2.3. Classification of ships
a/ Based on purpose of using:
There are passenger ship and cargo ship. Cargo ships are divided into dry cargo ships
and tankers.
 Dry cargo ships
- General cargo ship is designed with a single deck hull which includes a single holder
arrangement of holds and tween-decks, specially designed for carriage of diverse forms of
dry cargo such as final packed products, grain, containers etc. Multi-purpose general cargo
deck crane or derricks are used for handling cargoes.
- Bulk carrier is designed with a single deck hull which includes an arrangement of
topside ballast tanks and holds specially designed for the bulk carriage of various type of
loose dry cargo of homogeneous nature. This includes grain, coal, iron ore, phosphate,
bauxite etc. Bulk carriers usually have large capacity with 2-6 holds, each with large
unobstructed hatches, and are primarily designed for conveyance of bulk cargoes. Some
ships are built with special facilities particularly suitable for five main cargoes: grain, coal,
46
bauxite, phosphate and iron ore.
- Combined ships are designed for carrying two or more kinds of cargoes:
Ore/Bulk/Oil carrier (OBO), Bulk/Oil (BO) and Ore/Oil carrier (OO).
- Container ship is a specialized ship for carrying containers. There are full
container carrier, semi container carrier and convertible container carrier.
- Lighter Aboard Ship (LASH): This system refers to the practice of loading barges
(lighters) aboard a larger ship for transport. It was developed in response to a need to
transport lighters, a type of unpowered barge, between inland waterways separated by
open seas. Lighters are typically towed or pushed around harbors, canals or rivers and
cannot be relocated under their own power.
- Reefer/Refrigerated ship: The ship is designed with multi-deck hull which
includes an arrangement of refrigerated holds and “tween-deckers” specifically designed
for the carriage of perishable cargoes. The cargo handling method is lift on/lift off to and
from the holds.
- Ro/Ro ship: A ro/ro type of ship was designed for the conveyance of road haulage
vehicles and private cars. It is often called a multi-purpose ship.
- Heavy lift ships are designed for carrying of indivisible loads such as fully erected
cranes, yachts and project cargo embracing fabrication industries.
 Tanker: This category includes:
- Oil tankers: Oil tankers have many oil tanks and ballast tanks for water. Tankers
have high speed pump system for loading and discharging cargo.
- Other tankers for carriage wine, vegetable oil, chemicals etc.
- Liquefied Natural Gas Carriers have hulls to support the shape of cargo tank
providing the temperature at -162°C. This type of ship is expensive to build and
complicated to exploit. New generation of LNG can have capacity up to 200,000 m3 which
will improve efficiency and decrease cost for LNG shipments.
- Liquefied Petroleum Gas (LPG) carriers are designed for carrying gas at the
temperature under 0°c. This category of ship is much simpler than LNG in design and use.

47
b/ Based on size 5
 Bulk cargo ship: Based on size, they are classified into:
- The Capesize dry carrier has a capacity 100,000 dwt and above. Such ships are large
and cannot pass through the old Panama Canal (before June 2016). The Capesize ships
convey coal and iron ore and are not economical for fertilizer and grain shipments.
- The Panamax has a capacity between 65,000 and 99,999 dwt. They are deployed on
several routes primarily carrying coal and iron ore. The panamax ships are the largest ones
that can pass through the Panama Canal.
- The Handymax range has a capacity range from 40,000 to 64,999 dwt. The ships are
popular with smaller shipments and ideal for smaller ports such as in Vietnam with
restrictions on draught, length and storage. Cargoes include coal, iron ore, fertilizer grain,
steel slabs, bauxite, alumina, rock-phosphate and grain.
- Handysize bulk carrier 10,000–39,999 dwt
 Container ships
- Neo-Panamax: Ships that can transit the expanded locks of the Panama Canal
with up to a maximum 49m beam and 366 m length overall.
- Panamax: Container ships above 3,000 20-foot equivalent units (TEUs) with a
beam below 33.2 m, i.e. the largest size vessels that can transit the old locks of the
Panama Canal.
 Tankers
- Very Large Crude Carriers (VLCC): Tankers in this category range from 200,000
DWT and above. VLCC are employed on similar routes to ULCC’s but their smaller size
allows them to be more flexible. They can discharge at many terminals within the
Mediterranean, North West Europe, West Africa, etc. They also haVe advantage of being
able to transit the Suez Canal in ballast condition.
- Suezmax tanker. This embraces a capacity range from 120,000 to 200,000 dwt.

5
Review of maritime transport, 2019

48
Historically the name applied to the largest ships that could transit the Suez Canal.
- Aframax tanker. Aframax tankers are between 80,000 and 119,999 dwt. The fleet has
been expanding fast in recent years in response to growing demand, including clean product
trading such as naphtha, jet fuel, gasoline, and diesel/gas oil.
- Panamax tanker. Tanker in this category range from 60,000 to 79,999 dwt. These tankers
are the biggest that could transit the Panama Canal.
c/ Based on carried flag
There are two groups of ships
- Ships flying under a national flag or flag of state.
- Ships flying under flag of convenience/flag of foreign country.
As at 2010 more than 70% of the world’s merchant ships were registered with open registries
and the Panama, Liberia and Marshall Island flags accounted for almost 40% of the entire
world fleet in terms of deadweight.
d/ Based on method of trading:
- Liners: operate on a regular scheduled service between groups of ports. Liner
services offer cargo space to all shippers who require them. Liners sail on scheduled dates
irrespective of whether they are full or not.
- Tramps: are not operated on a fixed sailing schedule. They merely trade in all parts
of the world in search of cargo, primarily bulk cargo such as grain, coal, timber, sugar, ores,
etc., which are in complete shiploads. Tramps include ships trading on voyage chartering or
time chartering.
3.2. Types of chartering
Chartering can be divided into two categories: liners and tramps. Those that offer
common carriage services on a regularly scheduled basis on a regular trade route are called
liners, those that operate on an irregular basis according to the availability of cargo are called
tramps.
3.2.1. Definition and Specifications of liner chartering
 Definition

49
 Liners are ships operating on a fixed schedule, trading between fixed and
predetermined number of ports regardless whether they are full or empty. Liners follow a
schedule of ports of loading and discharge, usually adhering to a published time table on
set conditions of carriage and often charged at a published rate or freight.
Shipping services can be world round. Liner cargo is almost always made up of
manufactured or partly- manufactured goods. The vast majority (about 90%) of liner
cargo is carried in containers.
Liner chartering means booking shipping space. A cargo owner sends to the ship
owner or the liner a request to reserve space on the ship for his cargo.
 Specifications of liner
Specifications of liner are as follow:
- Plying among fixed ports and following published schedules;
- Liners’ cargoes are made up of a large number of different consignments from a number
of different shippers. Each consignment has to be separately documented and could be as
small as one carton or as large as several tones.
- The transport document is bill of lading that regulates the relationship of the carriers and
cargo owners (i.e. shipper or consignee).
- The cargo owners cannot negotiate the conditions, clauses of carriage but accept the
endorsed clauses of bill of lading.
- Liner freight includes loading, stowage/trimming and discharge expenses (beside the
transit cost). Liner freight is calculated according to liner tariff which is usually valid for a
certain period of time.
- The shipowner usually trades himself as a carrier. The carrier is a contracting party of
the contract of carriage and he is responsible for transported cargoes during transportation
process.
There are liner conferences or freight conferences that control and dominate the liner market.
Member of liner conferences is called conference liner.

50
3.1.3. Definition and Specifications of tramp
 Definition
Tramp chartering refers to a form of service where a charterer rents a ship for a specific
purpose, commonly between a specific port of origin and destination. This type of shipping
service is notably used in the case of bulk cargo, such as petroleum, iron ore, grain or coal.
Transporting those cargoes often requires specialized cargo ships.
 Specifications of tramp
- Basic document in tramp chartering is the charter party. The terms and conditions of a
charter party are negotiated individually. However, in practice, they are often based on a
standard form of charter party or a previous charter party;
- Tramp ships are plied as the charterer requires from port/ports to port/ports, not
depending on any schedules;
- Changes in the freight are often very fast and violent in comparison with liner freight.
The tramp market is influenced by the demand for shipping services to a greater extent than
the liner market;
- Tramp chartering can be voyage chartering, time chartering and demise chartering.
Voyage chartering
Voyage chartering happens when a charterer reserves a whole or a part of a ship for
transporting his cargoes from port/ports of loading to port/ports of discharge for a single or
some of voyages. Voyage chartering can be a single or consecutive voyage. Consecutive
voyage charter is a special type of voyage charter where the ship is contracted for several
voyages which roll over when one has finished and follow consecutively upon each other.
Time chartering
Time chartering refers to a situation where a charterer rents the whole ship for a period
of time. Under time chartering the crew is employed by the shipowner, who is also
responsible for the nautical operation and maintenance of the ship and the supervision of the
cargo. Within the framework of a time charter party, the charterer has the right to exploit the
ship and is responsible for the commercial operations during the hired period and, so he

51
decides the voyages to be made and the cargoes to be carried. In time chartering, the captain
of the ship is employed by shipowner but directed by the charterer and he must take both
into consideration.
The time charterer may be a shipping company that for a time needs to enlarge its fleet.
Time charterers are those who do not want to invest money to buy a ship but want to have
the control of the commercial operation of the ship.
Concerning the expenses, the shipowner is liable for ship maintenance, crew member wages,
insurance for a ship, etc. The charterer is liable for costs directly connected with the use of
the ship such as bunker costs, port charges, loading/discharge costs, broker’s commissions,
etc.
At the end of the chartered period, the charterer has to redeliver the ship at the place
agreed. It would often be hard for the charterer to use the ship effectively during the last part
of the charter period if he had to redeliver on a particular day. The charter party therefore
usually contains provisions on overlap, entitling the charterer to use the ship for a reasonable
time after expiration of the charter or on underlap entitling the charterer to redeliver the ship
earlier than the basic charter provides.
Bareboat chartering/Demise chartering
A bareboat chartering party is a contract for leasing the ship from owner to the charterer
without any crew. The charterer thus will take over almost all of the owner’s functions
except for the payment of capital costs. This means that the charterer will have the
commercial as well as the technical responsibility for the ship and will pay for maintenance,
crew costs, insurance, operational costs, etc.
Bareboat chartering usually covers a long period of time and in many cases, bareboat
chartering is connected with a purchase option after the expiration of the charter or during
the charter period. BIMCO standard forms Barecon A and Barecon B contain such a clause.
Thus bareboat chartering sometimes is described as a kind of ship financing rather than a
chartering agreement. The shipowner who is a person has surplus capital to invest whereas
the charterer lacks such capital but needs the ship. Financing a bareboat chartering is
actually a form of financial leasing based on a three-party relationship between seller/ship

52
owner - financeribank - and charterer/buyer and the charterer often becomes the owner after
the expiration of the charter.
Table 3.3: Type of tramp chartering
Responsibility Demise Time Voyage
charting chartering chartering
Employing crew Charterer Ship owner Ship owner
members
Paying wages for Charterer Ship owner Ship owner
crew members
Charterer Charterer Ship owner
Directing crew
Commercial Charterer Charterer Ship owner
Operation
Revenue of ship Hire rate and duration of hire Quantity of cargo
owner depends on: and freight rate

3.3. Liner Trade

3.3.1. Containerization
3.3.1.1. Unitization
Traditional handling methods are creating barrels, bales, cases, bundles of goods that are
handed individually. Cargo was carried or hand trucked from quayside to ship’s hold and
stowed manually in place in the hold and manually unload at discharging ports. It led to slow
productivity creating several economic costs because of ship’s standing idle and port was
poorly utilized. Slow handling to and from road/rail vehicles created inland congestion and
poor utilization of vehicles.
The first step was done by concentrating on palletization. The idea was to have every
piece of cargo palletized before the ship arrived for loading. Shippers palletized their cargo
for their own convenience. The rest would be palletized by the liner in their terminal.
Palletization raised productivity from 1.7 tons per man hour to 4.5 tons per man hour but this

53
change did not satisfy shipping companies as the handling process was still labor, time and
cost consuming.
The idea of using containers for transporting goods was as early as the 1830s for
transportation of ore, limestone and coal transported by tramways in England and America.
However, they were smaller in size and not in a standard form. Even using cranes with cargo
nets for lifting several items at a time could not accelerate the process of loading and
discharge. As a result ships used to spend weeks in ports for handling cargo. It delayed the
movement of goods thus affecting a shipper’s financial transactions, causing loss of income
to the shipowner who earns only when a ship is moving.
As a result of these factors throughout the 1950s and early1960s there were several
experiments to determine how cargo might be more effectively handled in larger units and
by technical means.
3.3.1.2. Containerization
The marine containers used today were first introduced in the 1950s by Malcolm
McLean who bought the Pan-Atlantic steamship corporation that was renamed Sea-Land.
He transported containers on the tankers. This success led to the conversion of six other cargo
ships into trailer ships which were equipped with onboard handling cranes for lifting
containers. In 1960, another container ship sailed from New York to Venezuela, marking the
container’s entrance into the international trade market. Later other steamship companies
quickly moved into container trade and container ports were constructed in New York and
Rotterdam. In 1967 the first trans Atlantic service delivering cargo from America to Europe
for 4 weeks earlier than expected made the concept of containerization accepted.
The success of containerization was standardization. In 1967 the International Standard
Organization released standards for containers making them easy to be used worldwide.
Containers of the same group have the same height and the same width but different length.
There were doors, locks, hook-hole standardized so that containers could easily be used with
different means of transport and handling equipment. So containerization is the practice of
stowing freight in reusable standardized containers so that they are suitable for
transportation. Goods may come in a variety of quantities, shapes but being stowed and

54
shipped in containers they can be handled as one single shipment, making it far easier to
transport. Container not only reduces time, cost but also helps protect the goods from damage
and theft. Container can be transported by road, rail, sea or air, thus it facilitates intermodal
transport. Furthermore, using container is a simple, fast, and cost - efficient way to handle
cargoes between ships and trucks. Actually, the route of cargoes from sellers’ warehouses to
buyers’ warehouses can include many stages and each stage contains a lot of unforeseeable
risks and hazards, some are from environment, climate, weather, some are from people... and
some from transshipment between vehicles such as trucks and airplanes, trucks and ships,
ships and ships. So using container can greatly reduce such risks for the carriers as well as
for the cargo owners.
3.3.2. Container bases
3.3.2.1. Container
 Definition
When the container concept was recognized, the shipowner agreed that standard
dimensions were essential to make the intermodal facility practical. The International
Standards Organization (ISO) quickly devised standard dimensions which made
containers interchangeable in national and international trade or intercontinental traffic.
According to ISO 668:2013(E), freight container means an article of transport equipment
which is:
a) Of a permanent character and accordingly strong enough to be suitable for repeated
use
b) Specially designed to facilitate the carriage of goods, by one or more mode of
transport, without intermediate reloading
c) Fitted with devices permitting its ready handling, particularly its transfer from one
mode of transport to another
d) So designed as to be easy to fill and empty;
e) Having an internal volume of 1 cubic meter or more.
The term "freight container" does not include vehicles or conventional packing. In practice,

55
the term “ISO freight containers” is also usually used, and that word indicates freight vans
complying with all relevant ISO container standards in existence at the time of its
manufacture. The term "container", unless clearly explain, otherwise, means “ISO freight
containers”.
However, although without internal volume and not satisfying criterion (e) above,
flat forms used in maritime transport should be considered a special type of container and
therefore are included here.
 Size and Weight of containers
The first ISO container series had 8 feet high and wide with lengths of 10, 20, 30 and
40 feet. Two containers 20’ or 1 container 40’ could be usually carried on one road trailer
or one 20’ and one 40’ on a rail wagon. Now 10’ and 30’ types have been almost
completely discarded.
ISO produced an 8’6” high standard for 40’ containers in 1973 and for 20’ containers
in 1976. It makes 8 feet high containers obsolete.
Later, super cube containers of 9’6” or 10’ in height were introduced (but the most
common is 9’6”) have been made. They are mainly used for shipment of lightweight goods
such as empty cans for the food industry, paper tissue products where extra cubic capacity
of the container can be utilized and still meet the allowed gross weight. Super cube
containers are not only increased in height but also in length. There are 45’, 48’ and even
53’ containers in use today (but the most popular one is 45’).
Table 3.4: Size of commonly used containers
High cube 45'
20' container 40' container
Specifications container
Imperial Metric Imperial Metric Imperial Metric

Length 19’101/2" 6.058 m 40'0" 12.192 m 45'0" 13.716 m

External Width 8'0" 2.438 m 8' 0" 2.438 m 8' 0" 2.438 m

dimension Height 8' 6" 2.591 m 8'6" 2.591 m 9'6" 2,896 m

Length 18' 105/16” 5.758 m 39'545/64" 12.132 m 44'4" 13.556 m

56
Internal Width 7' 819/32 " 2.352 m 7' 819/32” 2.352 m 7'819/32" 2.352 m
dimension Height 7' 957/64 " 2.385 m 7'9 57/64" 2.385 m 8'915/16" 2.698 m

Door Width 7' 81/8" 2.343 m 7' 81/8" 2.343 m 7' 8 1/8” 2.343 m
aperture Height 7' 5 3/4" 2.280 m 7'53/4” 2.280 m 8'549/64" 2.585 m

Volume 1,169 ft3 33.1m3 2,385 ft3 67.5 m3 3,040 ft3 86.1 m3

Maximum gross mass 52,910lb 24,000 kg 67,200lb 30,480 kg 67,200lb 30,480 kg

Empty weight/tare 4,850 lb 2,200 kg 8,380 lb 3,800 kg 10,580 lb 4,800 kg

Net load / payload 48,060 lb 21,800 kg 58,820 lb 26,680 kg 56,628 lb 25,680 kg
Soure: ISO 668:2020– series 1 (Freight containers)
 Types of container:
In terms of the type of cargo for which the containers are mainly intended, according to ISO
668:2020, they are classified as follows:
- General purpose container (GP/Dry Container /Shipping Container): Containers used
for all types of general dry cargo. They are usually steel made but some are aluminum or
GRP (Glass Reinforced Polyester). GP containers are closed on all sides except doors at one
or both ends.
- Ventilated containers: Used for cargo that requires ventilation during transit such as
coffee, cocoa bean and dry vegetables. Ventilated containers are similar to dry cargo
containers specially designed to allow fresh air or mechanical ventilation.
- Bulk container: Used for carriage of bulk cargoes where no external packaging is
required, e.g. grains and dry foodstuffs fall into this category. The container may have
hatches in the roof for top loading. It may have an inner lining, usually made of plastic. There
are unloading hatches in the doorways for emptying the containers.
- Open-top container: Used for transporting heavy and bulky cargo. They are supplied
with a tarpaulin cover. Some open-top containers have a removable steel roof – hard top
container.
- Platform container: Used for awkwardly shaped cargo. These units have no side or top,

57
just a base with lashing points and lifting lugs.
- Tank container: Used for transporting bulk liquids (chemicals, gases and hazardous
liquid). These are usually in a form of an oval tank supported in a skeletal rectangular frame.
- Flat rack containers: They are platforms with ends which enable the units to be stacked
on top of each other in the same way of general purpose units. These ends may be collapsible
to enable the unit to be locked together for ease of return when empty.
- Refrigerated containers (Reefer): These are equipped with a refrigerating unit which is
plugged into an electrical supply on the ship or the terminal. Some have their own diesel
generating sets. Those with their own integral refrigerating machinery are fully versatile and
can move any distance by road or rail after the sea trip; they are, however, much more costly
to build.
- Insulated containers: They are used for transporting goods that must be kept at a constant
temperature: fruit, vegetable, and dairy products. They are also refrigerated containers but
without integral generating unit. They rely on cold air blown through portholes in the end of
the container from a central cooling plant. It is important to stow cargo allowing adequate
space in the container for air circulation.
- Named Cargo Containers: These containers are specially made to transport specific
items such as cars containers, livestock and poultry containers.
 The container identification system
In 1995 the ISO 6346 reached an agreement on the marking codes that would depict Length,
Height and Type of container.

58
 Soure: ISO 6346:1995

3.3.2.2. Container port

A container port or container terminal is a facility where cargo
containers are transshipped between different transport vehicles, for onward transportation.
Container terminals are providing services for ships and cargo transported in containers.
The transshipment may be between container ships and land vehicles, for
example trains or trucks, in which case the terminal is described as a maritime container port.
Alternatively, the transshipment may be between land vehicles, typically between train and
truck, in which case the terminal is described as an inland container port.
A container terminal needs many hectares of land for accommodating containers, sorting
them into their pattern or for stacking conveniently for delivery and discharge.A container
port is equipped with specialized equipment and should provide:
- Space to accommodate cargo/containers waiting to be exported or imported and vehicles
awaiting transit. There should be a well - organized container yard for both storage and
handling of containers;
- Segregated area for hazardous cargoes/containers;
- Electric sockets for plugging in reefer containers;

59
- Sufficient quay length to accommodate the normal trade flows without delaying ships
unduly and goods, highly trained and qualified workforce working 24/7;
- Adequate loading/discharging equipment for normal cargo operations, including
movement around the port area, a good rail/road/barge network to facilitate delivery;
- Facilities for the necessary documentation to take place, including customs and excise
and port health checks and requirements;
- A sufficient customs clearance system;
- The necessary means to deal with emergencies.
In general container terminals provide material flows with two external interfaces: The
quayside with loading and unloading of ships; The landside where containers are loaded and
unloaded on/off trucks and trains.
3.3.2.3. Container handling equipment
With standardization of containers there are different types of specialized handling
equipment for containers. They are divided into two groups:
 Shipboard handling equipment
• The derrick
It is a simplest cargo handling equipment used onboard a ship. Derrick is used for transferring
cargo from ship to quay and vice versa.

 Gantry cranes
Some types of container/ro-ro ship and barge carriers are equipped with travelling portable
gantry cranes which straddle the full width of the ship. Gantry cranes are very useful where

60
the port facilities are still being developed or in smaller ships for self sufficiency when
operating to less well-equipped ports.

 Port handling equipment

 Gantry cranes
They are used on all containers terminals. They are usually large structures and rail mounted
and can traverse the length of a jetty. The gantry arm or boom is at right angles to the quay-
side and must span right across the ship to reach the containers on the far side. The boom
must also be high enough to clear the topmost tier of containers carried on the ship’s deck.

 Trans-container

61
It is smaller crane used to transfer containers in and out of the stacks in the port area and is
also placed over railways tracks to transfer containers between rail and road. They may be
rail or tire mounted.

 Mobile cranes
Mobile cranes have capacities of up to 20 tons or more. They are used to move heavy loads
within the dock area, or to supplement dock cranes for loading and discharge.

3.3.3. Container transport types

3.3.1.1. Full container load (FCL/FCL)
FCL means Full Container Load which is used in ocean freight service describing full
container shipping from one place to another. In FCL shipping, a full container of cargoes
will be sent to one consignee by one shipper only. This method is taken into practice when
a shipper has enough goods - in respects of weight, volume and cost - to stuff into full
containers to deliver to a buyer. The consignor is responsible to arrange and pay for the
stuffing of the container, securing inside the container, and counting goods inside. The

62
consignee is responsible for unpacking/stripping the container at the port of destination. Each
full cargo container is then received by the carrier and delivered to the consignee as one
package. Unless otherwise stated, providing the empty container to the shipper is the carrier’s
responsibility.
FCL is the best container shipping way regarding cost, volume and weight of the cargo.
The FCL process involves booking space, picking up empty container at the container yard,
stuffing at the shipper facility or at port (in case the shipper doesn’t have enough facility),
performing customs clearance (if needed), transporting by truck/rail to the port of loading,
sea/ ocean container shipping of the cargo to the port of discharge and delivery to final
destination.
In FCL/FCL responsibility and costs are shared based on the terms of sale signed
between the Seller and Buyer (Incoterms), the seller or buyer can be in charge of chartering
space on a ship. If the seller is responsible for that task, he/she must book space on the ship
by completing a booking request and send it to the carrier and receive a Booking
confirmation in return. If the buyer is to charter space on ship, he/she has to send the seller
the Booking confirmation once having received from the carrier.
For more details, responsibilities of involved parties are listed as below:
 Shipper’s responsibilities:
- Preparing the goods for transportation, including packing, marking, dunnage or
customs clearance if needed;
- Exchange booking confirmation for an empty container release order. The shipper
must pay attention to the information mentioned on the surface of the Booking
confirmation, especially about ship’s name, ETD, ETA, port of loading, port of
discharge, place of picking up empty container and place of returning full cargo container
(place of receipt), ... and cutting time or closing time (that is, the latest time that cargo
containers should be passed to representative of carrier in place of receipt or loading);
- Picking up empty containers from the ICD, CY expressly stated in the container
release note. The shipper needs to note that before picking up empty containers he must

63
carefully check the containers to make sure that the containers are in good condition for
stowing and transporting goods;
- Conducting the counting, stuffing and banding of goods into container after customs
clearance. So on Bill of lading of FCL/FCL type, there is the clause “shipper’s load, stow
and count” or “Said to contain”. This means carriers are only responsible for goods as
“STC - Said To Contain” term. They will not be liable for loss or damage inside the
containers although the carrier is responsible for the container throughout the
transportation from the CY at the load port to delivery at the CY at the discharge port.
- Closing the doors with a seal to make sure that the container is intact during the route
of the ship from port of loading to port of discharge;
- Taking full cargo containers to CY or ICD and handing over to the carrier in
accordance with carrier’s instructions stipulated on booking confirmation. There is a
closing time stipulated in the container release note and the shipper should handle the
container before closing time ends. However, if place of receipt is in an ICD, the closing
time may be a bit earlier than that in a CY of port of loading;
- Receiving EIR (Equipment Interchange Receipt). After handing over full container, the
shipper needs to get evidence that the carrier has already received his/her containers. Such
evidence could be either a received for shipment B/L or an equipment interchange receipt;
- Receiving shipped B/L from the carrier after the containers are loaded on board of the
ship. A shipped B/L demonstrates that: (1) the goods are really on board the ship and they
surely would be delivered on time if no incidents occur; and (2) the shipper has finished his
responsibility of delivery of goods to buyer (in accordance with some terms of trade such as
FOB, CIF and CFR);
- Paying related charges and fees such as terminal handling charge (THC) at the port of
loading, B/L fees, freight (if any);
- Sending necessary documents including B/L and other cargo documents to the consignee
so that the consignee can receive the goods in due time.
 Carrier’s responsibilities

64
- Receiving Booking note from the Merchant with all information about the owners,
shipment and the route;
- Confirming available space by Booking confirmation and container release note;
- Releasing empty containers;
- Taking over full containers from the shipper at CY or ICD;
- Loading cargoes onto ship;
- Collecting charges, fees, freight (if any) and issuing B/L
- Transporting containers to destination port
- Discharging containers to CY or ICD
- Sending consignee the Notice of Arrival stating the exact name of the ship, terminal,
time of arrival, number of containers...
- Releasing containers in exchange of B/L
 Consignee’s responsibilities
- Receiving B/L and cargo documents from the Shipper and the arrival notice from carrier;
- Surrendering B/L to the carrier or his agent to receive D/O (Delivery Order);
- Picking up full containers at the arrival terminal;
- Taking containers to Consignee’s firm for un-stuffing goods;
- Cutting seal and opening the doors, withdrawing goods out of the containers;
- Returning empty containers back to the carrier’s premise and paying related charges and
fees.
 Transport procedure of FCL/ FCL is presented as below:
- At origin port

65
 Figure 3.1: Export procedure FCL in relationship between shipper and carrier
- At destination port:

Figure 3.2: Import procedure in relationship between consignee and carrier’s delivery
agent
In many cases shipper sends the goods to forwarders and then forwarders work with shipping
lines for transport, the process will have more steps illustrated as follows:

66
 ORIGIN PORT DESTINATION PORT

Shipping line Shipping line’s agent

9

10 12
2 3 7 8

Forwarder Forwarder’s agent

11 13
4 5 6
1
Importer
Exporter

Figure 3.3: Export – import forwarding procedure by sea from orgin to destination with
involvement of forwarder
Step 1: In case exporter must pay freight, exporter checks freight
Step 2,3 : FWD check with shiping line and receive freight quotation form shipping line
Step 4: FWD advises exporter.
If exporter agrees, he sends booking to FWD, receives booking note from FWD.
FWD sends booking to Shipping line, and receive booking confirmation / empty release
order from shipping line.
Exporter receives empty container at container yard stated on the empty release order for
stuffing the cargo
Step 5, 6: Exporter delivers the cargo container to FWD and receive House B/L
Step 7, 8: FWD delivers the cargo container to Shipping line and receive Master B/L
Step 9: cargo container is transported to destionation port
Step 10: Shipping line’s agent sends Arrival notice (A/N) to FWD’s agent at destination
Step 11: FWD’s agent at destination issue new A/N and sends to importer
Step 12: FWD presents A/N and other required documments stated on the A/N for getting
Delivery order (D/O) and then pass this Master D/O to importer

67
Step 13: Importer presents A/N and other required documments stated on the A/N to FWD
for getting the House D/O. Importer uses these Master D/O and House D/O to work with
port and receives the goods
In reality, some exporters or importers may authorize forwarders to do all works for them.
3.3.1.2. Less than container load (LCL/LCL)
LCL/LCL is used when a consignment is not big enough to make up a full container. In
this method, it is the carrier’s responsibility to undertake the stuffing and un-stuffing,
securing and the tally for the packages that he/she accepts and takes receipt of. These costs
are normally included in the freight charges.
Merchants usually use a Non Vessel Operating Common Carrier (NVOCC)/ Freight
forwarder as a consolidator to group their goods together with other small consignments.
Upon receipt of the LCL cargo, it is essential for the carrier to check if the packing is suitable
as the carrier is liable for the safety of the cargo inside container. The number and marks on
the package are recorded on the B/L where applicable. Responsibilities and costs are shared
between the carrier and the cargo owner as follows:
 Shipper’s responsibilities.
- Booking a space of the ship or a container with a consolidator/ freight forwarder (if
applicable) or receiving a booking confirmation from the importer;
- Doing customs clearance for the goods (if required);
- Arranging and pay for the goods to be sent to the inland clearance depot (ICD) or
container freight station (CFS);
- Getting B/L from the carrier and send it to the consignee.
 Carrier/ Consolidator’s responsibilities.
- Receiving booking from the merchant and confirming by a booking acknowledgement;
- Receiving goods and grouping them with other small consignments for the same
destination and packing all into one container;
- Sealing containers and loading onto board of the ship;
- Issuing B/L;

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- Unloading containers at the destination port and moving them into CFS;
- Devanning goods out of container and delivering to each consignee;
- Bearing all costs and fees relating to cleaning container after devanning goods
 Consignees’ responsibilities
Consignees’ responsibilities in LCL method are quite different from those in FCL method.
The consignee only needs to do some tasks, including:
- Receiving B/L from the shipper and the arrival notice from the carrier;
- Surrendering B/L at the office of the carrier or his agent to get D/O;
- Getting their goods at CFS by showing D/O;
- Paying related costs and fees such as: LCL fee, D/O fee, THC, container clearance fee...
Generally, the liability for LCL cargoes is virtually the same as for break-bulk cargo in
which the liner (or the freight forwarder, consolidator, NVOCC) is responsible for each
package during his/her charge.
Be noted that once merchants have chosen LCL method they must take into
consideration not only the convenience but also the costs. For example, when the shipper has
10 packages of goods with packing details as follows: 500kg per package with dimensions
of 1 m (L) x l m (W) x l m (H). That means a total gross weight of 5 MT and a measurement
of 10 CBM. The goods surely could not fit a 20’ container physically, but it will be worthy
to place a full container booking if the LCL rate of 35 USD per freight tonnage plus other
fees is bigger than FCL rate of only 300 USD/TEU plus other fees.
Transport procedure LCL/LCL
- At origin port:

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 Firgure 3.4: Export procedure LCL in relationship between shipper and carrier
- At destination port:

Firgure 3.5: Import procedure LCL in relationship between shipper and carrier
3.4.1.3. Less container load / full container load (LCL/FCL)
This is a method where some small consignments from some different shippers will be
packed into the same container and sent to one consignee. Carrier’s CFS at the port of origin
is the place where all the goods are consolidated into the whole container which is then
delivered to the consignee at his/her premises. At port of loading, the procedures are as in
LCL shipping method but at port of discharge in FCL method.
3.4.1.4. Full container load /Less container load / (FCL/LCL)
It is used when one shipper needs to send goods to more than one consignee.
3.4. Voyage Chartering
(1) The charterer searches information for a ship. It is usually made via a ship broker who
has continuously updated information about ship and freight markets

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 Procedures of tramp chartering:

Figure 3.6: Steps of tramp chartering

(2) The ship broker finds the shipowner who has ships for chartering. In most cases the ship
broker is a middleman for negotiating the charter party.
(3) The charterer and shipowner agree the charter party based on a standard form of charter
party or a previous charter party. It is not uncommon when both charterer and shipowner
have their own brokers who are responsible for negotiating the charter party.

Revision questions:
1. What is draft? Which factors determine the draft of a vessel?
2. What does DWT stand for? Meaning of DWT?
In your opinion, should people rank vessel fleet of a country based on number of ship or DWT?
Why?
3. Present main types of chartering vessel.

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Who is likely to contract a time chartering contract?
4. Present the process to send goods from a shipper to a receiver for LCL/LCL .
5. Present the process to send goods from a shipper to a receiver for FCL/FCL (case: a shipper
send goods directly to a shipping line).
6. Present the process to send goods from a shipper to a receiver for FCL/FCL (case: a shipper
send goods through a forwarder).
7. List documents appearing in the forwarding process of goods, and arrange them in the order of
time).

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 CHAPTER 4: CARRIAGE OF GOODS BY AIR
4.1. History of air transportation.
The modern age of powered flights began in 1903 when Orville Wright made the first
sustained, powered flight on December 17th in a plane built by him and his brother Wilbur.
This twelve second flight led to the development of the first practical airplane in 1905 and
launched worldwide efforts to build better flying machines. As a result, the early 20th century
witnessed myriad aviation developments as new planes and technologies were put into use.
During World War I, airplanes also proved their effectiveness as a military tool, and with the
advent / coming of early airmail service, showed great promise for commercial applications.
The first aircraft cargo transportation occurred on November 7 th 1910 when a few rolls of
silk were transported by air from Dayton to Columbus, Ohio, the United States. In the
following year 1911, experimentation with the air movement of post was started, and by
1914 regular air service began in the United States. In Germany, the first official air mail
flight occurred in 1912. However, it was not until 1925 that a comprehensive airmail service
was available in the U.S. On October 7, 1925, the first five Contract Airmail (CAM) routes
were issued by the U.S. Postal service to fly airmail between designated points. For example,
CAM 1 flew the New York to Boston route and was managed by Juan Trippe, who would
later started Pan American Airways. By 1931, 85% of airline revenue was from domestic
airmail contracts, with 14.8% from passenger service and only 0.2% from freight service. If
it had not been for the postal service CAM routes, the development of the U.S. commercial
aviation section would be hampered.
World War II caused a rapid expansion of the aviation industry and for the first time, large
scale movements of air freight were carried out to support the war effort. For example, in
support of the Nationalist Chinese, over 650,000 tons of cargo were transported over the
Hump between India and Southern China between 1942 and 1945. Later, in the 1948 and
1949 timeframe, the largest airlift in history occurred to support the blockaded city of Berlin.
The era of the wide-bodied jets started in 1970 when the first Boeing 747 entered the service.
This was the first time in history that the aviation industry chose size over speed to increase
performance. Soon afterwards, Douglas and Lockheed started production of three engine
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wide-bodied aircraft, the Douglas DC-10 and Lockheed L-1011. In the beginning, only the
passenger market was serviced by these new wide-bodied aircraft until Lufthansa flew the
first Boeing 747 freighter in April 1972 between Frankfurt and New York.
By 2012, there were 1738 freighters / cargo planes in operation worldwide, 37% of which
were large wide-bodied aircraft (>80 tons), 36% were medium wide-bodied aircraft (40 to
80 tons) and 27% were standard bodies with carrying capacities of less than 45 tons.
4.2. International Aviation Associations
4.2.1. International Civil Aviation Organization (ICAO)
ICAO is a specialized agency in the United Nations system. It was founded at the
International Civil Aviation Conference in Chicago on the 1st of November 1944 to promote
the safe and orderly development of international civil aviation throughout the world. It sets
standards and regulations necessary for aviation safety, security, efficiency and regularity,
as well as for aviation environmental protection. The organization serves as the forum for
cooperation in all fields of civil aviation among its 191 Member States.
ICAO’s aims and objectives are set out in the Convention on International Civil Aviation or
the Chicago Convention as below:
- Insure the safe and orderly growth of international civil aviation throughout the world;
- Encourage the arts of aircraft design and operation for peaceful purposes;
- Encourage the development of airways, airports, and air navigation facilities for
international civil aviation;
- Meet the needs of the peoples of the world for safe, regular, efficient and economical air
transport;
- Prevent economic waste caused by unreasonable competition;
- Insure that the rights of contracting States are fully respected and that every contracting
State has a fair opportunity to operate international airlines;
- Avoid discrimination between contracting States;
- Promote safety of flight in international air navigation;
- Promote generally the development of all aspects of international civil aeronautics.

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ICAO is now based in Montreal, Canada. Only governments of various countries can join
the ICAO and become a member. Until 2013, there are 191 Contracting Member States in
ICAO. Vietnam became a member of ICAO on 12 April 1980.
4.2.2. International Air Transport Association (IATA)
The International Air Transport Association (IATA) is the trade association of the world’s
airlines, headquartered in Montreal, Canada. This non-governmental international
organization was founded in Havana, Cuba in April 1945.
At its founding, IATA had 57 members from 31 nations, mostly in Europe and North
America. Today it consists of 290 airlines members from member nations. Flights by IATA
members now represent 84% of total air traffic, making its leadership more crucial than ever.
The aims and objectives of the IATA:
- To promote safe, regular and economical air transport for the benefit of all the people of
the world, to foster commerce and to study the problems connected herewith.
- To provide means for collaboration among the air transport enterprises engaged directly
or indirectly in the international air transport services.
- To cooperate with the International Civil Aviation Organization and other international
organizations
Vietnam Airlines joined IATA officially on December the 5th 2006. Being a member of
IATA, Vietnam Airlines are able to earn commercial benefits from receiving preferential
treatments granted to members of IATA. Moreover, the IATA’ S official admission helps
affirm the international ranking of the Vietnam Airlines brand as well as the global quality
of Vietnam Airlines’ services.
4.3. Airline geography
Air geography is made up of Traffic Conference Areas which are geographical divisions of
the world used for the purposes of fare structure establishment. IATA divides the world into
three areas which normally known in the industry as IATA Traffic Conference areas:
Area 1 or Traffic Conference 1 (TC1) - Encompassing all of the North and South American
continents and the islands adjacent thereto, Greenland, Bermuda, the West Indies and islands
of the Caribbean Sea, the Hawaiian Islands (including Midway and Palmyra).

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Area 2 or Traffic Conference 2 (TC2) - Encompassing all of Europe (including that part of
the Union of Soviet Socialist Republics in Europe) and the islands adjacent thereto, Iceland,
the Azores, all of Africa and the islands adjacent thereto, Ascension Island, that part of Asia
lying west of and including Iran.
Area 3 or Traffic Conference 3 (TC3) - Encompassing all of Asia and the islands adjacent
thereto except the portion included in Area 2, all of the East Indies, Australia, New Zealand
and the islands adjacent thereto, the islands of the Pacific Ocean except those included in
Area 1.
The three main IATA areas are further sub-divided into sub-areas
Table 4.1: IATA Traffic Conference Areas and Sub-Areas
TC Area Region Sub Area
TC1 North and South American 1. Caribbean

Continents and adjacent islands 2. Mexico

3. Long Haul
4. Within South America
TC2 Europe Africa Middle East 1. Within Europe
2. Within Africa
3. Within Middle East
TC3 Asia, Pacific and adjacent 1. South Asian
islands Subcontinent
2. South East Asia
3. South West Pacific
4. Japan, Korea

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4.4. Air Cargo Carriers
There are several types of air carriers in the air cargo industry: the predominant ones include
the all cargo carriers, the integrators (operators that deliver cargo from point to point rather
than airport to airport), mixed carriers that operate a fleet of both passenger and freighter
aircraft.
4.4.1. All cargo carriers
The all-cargo carriers operate a dedicated fleet of freighter aircraft.
Some examples of all cargo carriers are Cargolux, Evergreen, Kalitta, Northern Air and
Centurion. These carriers seldom deal directly with individual shippers, and instead typically
work with intermediaries called freight forwarders. Forwarders consolidate many small
shipments from their customers into pallet size loads. They buy cargo space wholesale from
the air carriers and sell retail to their customers. Working with freight forwarders all cargo
carriers often will enter into long-term contracts with the forwarders, which provides some
stability in demand for carriers. These long-term contracts provide economies of scale for
the airlines enabling them to enter into long-term contracts to lower purchasing price and

77
hedge against price uncertainty. However, with over 90% of volume shipped by air organized
by intermediaries, the all-cargo carriers are linked closely to the decisions of the freight
forwarders.
4.4.2. Integrators (door to door)
The integrators, also known as express carriers, are firms that provide door-to-door service
such as UPS, FedEx, and DHL. Many of these firms operate dedicated all cargo aircraft,
delivery vehicles, and cargo hubs. The cost for express services is much higher than for other
modes of transportation. However, the express carrier must own and operate the entire
transportation network from delivery vehicles to hubs (both ground and air hubs); the
dedicated aircraft to move the cargo, receiving air hub and the downstream transportation
network to deliver the cargo to its final destination.
4.4.3. Combination carriers
Combination carriers move both passengers and cargo. Like the all cargo carriers,
combination carriers work almost exclusively with freight forwarders to provide the pickup
and delivery service to the ultimate customer. Airlines such as Lufthansa, Air France, Cathay
Pacific Airways, and Korean air operate fleets of both passenger and dedicated cargo aircraft
and therefore considered combination carriers. Combination carriers can earn up to one-half
of their gross revenues from cargo on some routes.
4.5. Air Cargo Agents
Air cargo/freight agent is a middleman connecting cargo-owners and air carriers. Air freight
agents receive air freight shipments, supervise loading and unloading, and keep written
records.
Air cargo agents are mainly responsible for:
- Receiving cargo from shippers and making cargo to be ready for air transportation. Air
cargo agency is responsible for packaging, labeling and marking cargo according to IATA
and FIATA regulations for cargo transported by air;
- Verifying documents and conditions for transportation of dangerous goods according to
IATA, FIATA and government regulations;
- Booking air space with airlines, arranging cargo insurance;
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- Prepare air transport documents and payment;
- Tracking and tracing cargo transported by air;
- Assisting cargo-owner in claiming procedure (if any).
Air cargo agency is considered having completed his/her duty for airlines after handling all
transport documents to them. Air cargo agent has commission of 5% of air freight.
There are two types of air cargo/freight agents:
 IATA cargo agent:
IATA cargo agent is an agent satisfying IATA standards in air freight forwarding and
registered as an IATA agent. Any person involved in international airfreight and complying
with appropriate license and legal requirements may apply for registration as an IATA cargo
agent by submitting an application in the form of written answers to a questionnaire issued
by IATA. Accreditation procedures and conditions are subject to regional requirements.
General and local requirements to obtain IATA accreditation are available in the customer
portal Resource Center of IATA. There are essential requirements as follows:
- Qualified and duly trained staff, particularly with regard to the acceptance/ handling of
dangerous goods;
- Sound financial standing;
- Suitable working premises and cargo handling facilities; and active promotion and sale
of international air cargo transportation.
 Airfreight forwarder
- An air freight forwarder/forwarding agent is a person or company organizing air
consolidation and shipments. Like an air cargo agent, an airfreight forwarder is a middleman
between shippers and carriers by air. An air freight forwarder acts as a contracting air carrier
and takes responsibility to deliver cargo by air. In the relationship with airlines, an air freight
forwarder acts as a shipper having cargo moved by air.
- In comparison to an air cargo agent, the scope of services provided by an air freight
forwarder is wider. In addition to services normally provided by an air cargo agent, air freight
forwarders also provide:

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- Consolidation: Air freight forwarders console various smaller shipments from different
shippers and have them shipped as one bigger shipment using one airway bill;
- Break-bulk: At the airport of destination, cargo will be delivered to the air freight
forwarder’s agent who is called break bulk agent. The break bulk agent is responsible for
delivering cargoes to each of consignees.
- Assisting shippers with import and/or export documents. Documents that are typically
reviewed by an air freight forwarder includes commercial invoice, shipper's export
declaration, airway bill, payment of air freight and other documents required by the carrier
or country of export, import, and/or transshipment.
4.6. Airfreight forwarding practices
4.6.1. Procedure
Step 1. Booking air freight
Step 2. Preparing goods + documents
Step 3. Trucking to airport
Step 4. Scaling goods (w/ agent)
Step 5. HAWB
Step 6. Labeling (MAWB; HAWB)
Step 7. Performing export customs clearance
Step 8. Security checking
Step 9. Attaching documents
Step 10. Notifying the consignee
Step 11. Receiving A/N
Step 12. Exchanging A/N for attached documents
Step 13. Performing import duty clearance
Step 14. Receiving the goods at the airport
4.6.2 Some notes
 Booking Air Freight
Cargoes are mainly transported by commercial regular flights or chartered aircraft. Either

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shippers or freight forwarders have to reserve space with an airline. Most airlines have online
reservation software allowing shippers or freight forwarders to directly and seamlessly book
outbound flights. This system controls space reservation and automatically confirms the
booking if there is space on the flight requested; offers alternative flight if no space available;
accepts confirmation or rejection from shippers/freight forwarders. In cases where more than
one airline are involved in transportation, the first carrier will arrange the onward booking
and transfer of freight from one carrier to another. In order to ensure smooth handling and
proper transfer of the goods, the shipper/freight forwarder must supply the following
information to the first carrier:
- Number of packages;
- Weights, dimensions and volume of the shipment;
- The nature of the goods;
- Airport of departure/ destination;
- Requested routing: flight date, flight number;
- Types of goods and special considerations.
All airlines require advance arrangements when transporting/ handling any of the following
types:
- Valuable cargo or cargo requiring special handling security;
- Pieces of unusual shape and size;
- Live animals;
- Human remains, other than ashes;
- Perishables, restricted goods requiring special making, documents, load limits;
- Consignments requiring special care;
- Dangerous goods.
In air transport shippers /freight forwarders are responsible for making the goods ready for
carriage (RFC). That means the shipper/freight forwarder should consider the following:
- Packaging and labeling;

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 - Sizing of shipment;
- Customs clearance for export (if applicable);
- Preparing for security checking;
- Providing accurate special information relating to the goods.
 Packaging
Goods for shipment by air should be prepared and packed properly ensuring safety for
transportation not only by air but also by other means of transport involving in transportation
to and from airport. Besides, packaging should be done in a way that could minimize the
weight of shipment. Packaging may be simplified if cargoes are to be transported in airfreight
container and ULDs. Proper packaging of goods for transportation requires a good
understanding of the product and distribution conditions. It also requires knowledge of
packaging materials and experiences.
Depending on the nature of cargo to be transported, shippers or freight forwarders should
use relevant packages. They also need to observe relevant standards set for the packing to be
used, for instance, standards applicable to dangerous goods and livestock introduced by
IATA or ICAO. The International Air Transport Association has established the following
guidelines for packaging cargoes transported by air:
- Cargo shall be packed so as not to injure or damage any persons, cargo or other properties
and to ensure safe carriage with ordinary care in handling. Containers loaded by the shipper
(single shipments, not consolidations) should have a non-reusable seal attached by the
shipper to verify that the goods have not been tampered with;
- Dangerous goods shall be packed in accordance with the IATA Dangerous Goods
regulations;
- Liquids shall be packed in containers strong enough to prevent any leakage or breakage
caused by temperature or altitude, filled so as to provide adequate room for expansion and
securely closed;
- Perishables should be transported in relevant conditions with special instructions for
storing and transporting. For example, perishable goods such as fresh fruits, chilled meat and

82
fresh seafood require special packaging to prevent leaking and spillage. Some of cargoes
need extra protection such as polyethylene film sheet, ice packs, water-resistant fireboard,
etc.
-Valuables shall be packed so that the contents cannot be removed without leaving visible
evidence thereof; when shipping valuable goods, shipper should advise the airline of
valuable shipments and special security measures. Airline liability is limited by international
laws and compensation for loss of or damage to cargo is not as fully as value of the cargo;
- Live animals like cats, dogs, fish, etc. are transported by air in compliance with the
regulations set by IATA’s Live Animals Regulations. The IATA Live Animals Regulations
provide important information on the appropriate type of containers for different types of
livestock. Regulations require the shipper to provide the minimum standards for the transport
of live animals in cages, pens. As for endangered species such as tigers and lions there should
be a prior approval from the Convention on International Trade in Endangered Species of
Wild Fauna and Flora (CITES).
Good packaging practices not only protect cargo from loss or damage but also facilitate
handling.
There are different ways to pack air cargoes such as:
- Shipping Container: ULD
- Inner containers: such as cardboard boxes (solid or corrugates), wooden boxes, crates,
wire bound boxes or crates, cleat plywood boxes, steel drums, fiberboard drums, barrels,
casks or kegs; multi wall shipping sacks; bales; alternative storage systems. When preparing
wooden packaging, exporters should note that they need to get the fumigation certificate of
the package.
- Insulating materials: fiberboard, cellulose wadding, air bubble wrap, foam, etc.;
- Individual consumer packages: packaging materials used for the final consumer product:
boxes, plastic wrap, bags, bottles, etc.
 Size of Shipment
Due to limitations of aircraft in terms of loading capacity and necessity of distribution

83
of weight, the actual size and weight of the shipment is a vital concern. If the shipment is too
large or heavy to be placed on the aircraft, it cannot be shipped by regular airfreight but need
to be palletized so as not to place dangerous stress on the aircraft.
The dimensions of packages must conform to the configurations of the Unit Load Device
(ULD) employed by the aircraft. ULDs are designed to fit exactly in different aircraft types,
and are considered part of the aircraft structure during flight. Each aircraft may have unique
configurations and requirements, especially in terms of the limitations of dimensions so that
packages can pass through cargo doors. Therefore, it is recommended that shippers/freight
forwarders should contact air carriers for the specific capacity issues and improving transport
efficiency. ULDs offer air cargo shippers major advantages when it comes to efficiently
grouping, assembling, moving, disassembling and redistributing packages with a wide
variety of shapes. Benefits of using air ULDs include easier handling of shipments on arrival,
improving protection to the cargo, reducing handling costs.
Table below introduces the weight capacity and dimensions of standard Air Unit Load
Devices for most aircraft.
Table 4.2: Characteristics of Typical ULD's

Dimensions (inches) Volume

Container (cubic Capacity
L W H feet) (lbs)
108" pallet with net 88 108 78 350 7,500

125" pallet with net 88 125 78 410 9,500

108" igloo 88 108 78 340 7,000

125" igloo 88 125 78 404 9,000

LD7 pallet (lower deck) 88 125 62 340 7,700

LD7 igloo (lower deck) 88 125 62 340 7,200

LD3 container (lower deck) 79 60 64 158 2,500

Source: http://www. searates. com/reference/uld/

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  Labeling and Marking
As mentioned above, the weight of goods is such an important consideration for
airfreight shipments that there is a high risk that one shipment is split into some smaller
shipments during transportation by air. It is therefore recommended that each and every
package should be labeled clearly and legibly. The label (talon) should contain the following:
- Air waybill number
- Departure
- Destination
- Total number of pieces
- Handling Information;
- Transfer stations (i.e. any airport(s) through which the shipment passes en route to its
ultimate destination).
Special labels should be affixed for dangerous goods, in accordance with IATA standards.
IATA standard labels are also available for special consignments such as live animals,
perishables, explosives cargoes, etc.

Revision questions:
- Who is membership of ICAO? IATA?
- List documents appearing in the forwarding process to send the goods from shippers to
receivers and arange them in the order of time.
- Present the process to send the goods shipped by air from shippers to receivers.

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 CHAPTER 5: MULTI-MODALISM
5.1. Introduction to multimodal transport
A development in recent years emerging from combined transport operation, multi-
modalism is the non-vessel operating common carrier (NVOCC). It may arise in a container
(FCL or LCL) movement or trailer transit. In such a situation, carriers issue bills of lading
for the carriage of goods on ships which they neither own nor operate. It is usually a freight
forwarder issuing a ‘house’ bill of lading for a container or trailer movement, or if the trailer
movement is in the UK/continental trade, a CMR consignment note.
An example arises where a freight forwarder offers a groupage service using a nominated
shipping line and shipping line equipment. The freight forwarder offers his own tariff for the
service but buys from the shipping line at a box rate. NVOCC allows shipping companies to
concentrate on ship management and the freight forwarder to use his expertise at marketing
and consolidating cargo. It has been rapidly developed nowadays.
Multimodal transport is essentially an international through-transport combination with
various modes of transport such as ship, rail, truck, airplane, etc., primarily through the use
of containers. Containers will ensure the transport of unitised cargo from its origin to its final
destination, with efficiency and least possible risk (UNCTAD, 1993).
5.1.1. Definition
- Multimodal Transport: Where the carrier organising the transport takes responsibility for
the entire door-to-door transport and issues a multimodal transport document. (Multimodal
Transport Handbook (1995).
Multimodal transport is therefore a concept which places the responsibility for transport
activities under one operator, who then manages and coordinates the total task from the
shipper’s door to the consignee’s door, ensuring the continuous movement of the goods along
the best route, by the most efficient and, cost-effective means, to meet the shippers
requirements of delivery. This means simplified documentation, and increasingly by
electronic means such as electronic data interchange (EDI).
Multimodal transport (also known as combined transport): is the transportation of goods
under a single contract, but performed with at least two different means of transport; the
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carrier is liable (in a legal sense) for the entire carriage, even though it is performed by
several different modes of transport (by rail, sea and road, for example). The carrier does not
have to possess all the means of transport, and in practice usually does not; the carriage is
often performed by sub-carriers (referred as "actual carriers"). The carrier responsible for the
entire carriage is referred to as a multimodal transport operator, or MTO.
Multi-modalism is the process of operation/providing a door-to-door/ warehouse- to-
warehouse service to the shipper embracing two or more forms of transport, and involving
the merchandise being conveyed in a unity form in the same unit for the throughout transit.
- Multimodal transport operator (MTO): means any person who on his own behalf or
through another person acting on his behalf concludes a multimodal transport contract and
who assumes responsibility for the performance of the contract.
When a multimodal transport service is provided, MTO will be liable from the point of origin
to the point of destination (UNCTAD, 1995). He will issue one transport document that will
include invoice for freight charges, and also a guarantee for the transit time. From that point
onwards, the MTO concludes a number of sub-contracts with individual carriers, road, rail,
shipping lines, port authorities, terminal operators, stevedores, etc., on the MTO’s own name,
not that of the shipper or the consignee. Only the MTO is entitled to take delivery of the
goods from each actual sub-carrier and pass them to the next sub-carrier. The MTO, in acting
as a principal, is therefore responsible for the whole transport chain.

Firgure 5.1: Responsibility of Multimodal transport Operator

87
5.1.2 Important features
The main features of a multimodal transport are:
- The carriage of goods by two or more modes of transport, under one contract
- One document and one responsible party (MTO) for the entire carriage who might
subcontract the performance of some carriers
- One liability: The terms "combined transport" and "intermodal transport" are often used
to describe the carriage of goods by two or more modes of transport. Therefore, in case of
damage or loss, each company will only bear responsibility for only its own stage in line
with the rules applicable to the transport contract. In multimodal transport, these actual
carriers assume resposibility with the MTO, and MTO assumes all responsility to the shipper
from receiving the goods for transport to delivering the goods to the consignee.
- One freight.
5.2. Rationale of development of multi-modalism
As we progress through the 1990s, multi-modalism will become the prime method of
distribution in a competitive market. Shippers are looking to the carrier to provide the
optimum route for their buyers at a competitive tariff and acceptable throughout transit time.
The development of multi-modalism has arisen due to the following reasons:
- Development of ‘just in time’ strategy requiring dedicated and integrated schedules
within shippers’ warehouse and distribution arrangements.
There are five group of activities in their logistics management concept and emphasised that
some linkages and common processes must be established between them. These five groups
of activities can be classified into two dimensions. The first dimension includes the physical
activities that are required to create the form, time, place, and quantity utilities. They are
manufacturing/operations and transportation, which create the product/service and
movement, as well as physical distribution that stores the product/service. The second
logistics transaction activities (behaviour and information flows) that follow or initiate the
physical activities discussed previously.

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 Figure 5.2: Activity integration of logistics management
Transportation is the most importance activity. This cost consists of 1/3 of total cost
of logistics. Therefore, it is necessary to reduce transport cost to create
competiveness of goods but have to keep “just in time” strategy. Multimodal
transport can meet the above standard.
- Containerization and its infrastructure through the seaport network continues to
expand.

5.3. Merits of multimodal transport

- Minimizes time loss at trans-shipment points, provides faster transit of goods
- Reduces burden of documentation and formalities
- Saves cost
- Reduces cost of exports: The inherent advantages of multimodal transport
system will help to reduce the cost of exports and improve their competitive position
in the international market.
5.4. Forms of multimodal transport
An example of consignment from Malaysia to industrial Europe via Dubai would embrace
three major legs of the transit: (a) the rail journey from the dry port of Ipoh to Port Klang;

89
(b) the maritime trip between ports Klang and Dubai; and (c) the flight from Dubai to
Frankfurt.
Typical steps in transport chain:
- Acceptance by MTO of cargo at shipper’s door
- Inland transport
- Customs clearance / handling export (if any)
- Main transport legs (ocean/ road/ rail /air)
- Terminal activities (import)
- Customs clearance / handling
- Inland transport
- Delivery to consignee
Forms of multi-modalism are given below:
(a) Sea/ Air : Containerization - FCL/LCL
(b) Air / Road
(c) Road/Rail: trailer/truck
(d) Land-bridge – Sea/ Road/Sea: Pallet/IATA container.
(e) Road/Rail/sea/Road…
(f) Mini Bridge: Sea (port to port)/Rail to the second port of the destination country
(g) Micro Bridge: Sea (port to port)/ Rail to Centre of city of the destination country

Revision questions
1. Present of advantages of “multimodal transport”.
2. Present responsibility of MTO.

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 CHAPTER 6: FREIGHT
6.1. Terminologies relating to freight
Freight is the reward payable to the carrier for the carriage and arrival of goods in a
recognized condition ready to be delivered to the merchant. The pricing of air or sea transport
services, usually in combination with land transport services, is dependent on the forces of
supply and demand, but the factors affecting both supply and demand are perhaps more
complicated than in the case of most other industries and services.
Freight rate is the amount payable for each freight unit.
The freight rate in liner chartering is fixed by carriers but the freight rate in tramp
chartering is drawn up as an agreement known as a charter party between the ship owner and
the charterer.
In regard to air freight rates, it is operative on regular scheduled international services,
these are decided collectively by the airlines through the IATA mechanism which adopts a
policy of parity on level of rates on individual services/routes.
6.2. The constituents of the tariff
Basically, the tariff offered for a consignment can embrace a number of elements other
than the sea, air, plus inland transport freight and other charges and these are listed below:
Basic cargo rate: Ocean freight, air freight, land haulage. Freight rate making has
changed significantly in recent years consequent on the development of multi-modalism
(Chapter 5). No longer is the rate based on one carrier on a port-to-port or airport-to-airport
basis; it also often involves two or three carriers providing a dedicated door-to-door service
featuring one overall composite rate. For example, a consignment from Center of Hochiminh
city to Denver city. In the case of the agent’s consolidated rate, it could be a thorough tariff
from the shipper’s factory to the importer’s distribution warehouse.
Terminal handling cost: This embraces cost of handling the cargo at the terminal. It is
sometimes included in the thorough rate. In the case of containers, it is usually based on a
tariff per container lift, ship to shore and vice versa. It can vary by container type, empty or
loaded.

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 Documentation charge: B/L fees that a shipper should pay to the carrier for having a bill
of lading; D/O fee that the consignee should pay to the carrier when exchanging B/L for
Delivery order (D/O)
Peak Season Surcharge (PSS): is added to cargo moving from ASIA to EU, US in peak
season duration.
Container Imbalance Charge (CIC): Also known as extra cost of imported goods in
container transport, can be understood roughly as surcharges of sending empty shells to other
countries. There will be large container shell stock in countries where demand of exporting
employing containers is less than that of importing. As a result, carriers must carry these
empty containers to countries which have high demand for exporting in containers to ensure
adequate facilities provided to exporting customers. Therefore, carriers impose this charge
to minimize losses that they would incur.
Bunker or fuel surcharge (bunker adjustment factor, BAF): In an era when fuel costs
now represent a substantial proportion of direct voyage cost, an increase in the bunker price
erodes the shipowners voyage profitability. In the case of increase in fuel price, the fuel or
bunker surcharge will be charged additionally to the freight.
Currency surcharge (currency adjustment factor, CAF): This arises when the freight rate
is related to a floating currency and the currency had devalued. Accordingly, a currency
surcharge is imposed to minimize losses that the shipowner would incur.
Handling charge: These embrace a variety of items including freight services, telephone
calls, telex or fax messages, …
Heavy Weight Charge (HWC): is usually raised for heavy lifts such as indivisible
consignments and on excessive height or length, together with any other traffic where special
facilities are required.
Transshipment charge: This arises when cargo is transshipped en route to continue its
transit. It may occur at an airport or seaport. Again it could be an inclusive charge within the
thorough rate, but much depends on the circumstances.
Demurrage: Charge due to putting or detaining cargo containers by cargo owners at
terminals beyond an allowed period. The cargo may be delayed to move out of the terminals

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due to wrong presentation of Customs clearance documents, non-availability of
export/import license, pending payment of Customs duty, awaiting collection by consignee
etc.
Storage fee: the Consignee will receive an arrival notice by fax, mail or phone call. Once
receiving the arrival notice the consignee should act promptly because free storage at
destination ocean port is limited. Depending on shipment terms and port of arrival, free
storage at destination varies between 3 and 7 days. Then, storage charge will be applied and
this can increase shipping cost substantially. If consignee is not familiar with the import
cargo procedures, he/she can use services of freight forwarding agent.
Detention fee: It is different from Demurrage, Storage charge at container yard even
though they are often applied together. This is roughly understood as the penalty if cargo
owners keep the empty container at their warehouse beyond the allowed time. For imported
cargo container, when a sea FCL container arrives at a sea port of destination, the consignee
moves the cargo container out of the terminal and is responsible for returning the empty
container to the carrier after de-stuffing. If the consignee returns empty container late beyond
the allowed time, detention charge will be applied. For exporters, it also applies for the case
the exporter keep the empty container in his warehouse for stuffing the goods from the time
to pick up empty container until the time to discharge the cargo container at port of loading
beyond the allowed time.
…
6.3. Factors influencing formulation of freight rates
We will now examine the salient factors which influence the formulation of freight rates.
- Competition: Keen competition on rates exists among various modes of transport. For
example, in the UK—Europe trade competition exists amongst air freight agents offering
consolidated services, train ferry services, ISO containerization and international road
haulage.
- The nature of the commodity, its quantity, period of shipment(s) and overall cubic
measurements/dimensions/value.
- The origin and destination of the cargo.

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 - The overall transit cost.
- The nature of packaging and convenience of handling.
- The susceptibility of the cargo to damage and pilferage.
- The general loadability of the transport unit.
- Provision of additional facilities to accommodate the cargo, namely heavy lifts, strong
room, livestock facilities, etc.
- The mode(s) of transport.
- Actual routing of cargo consignment. Alternative routes tend to exist, particularly in air
freight, with differing rates structure and overall transport cost. The factor which has come
to prominence in recent years in rate assessment, is the ‘value added benefit’ the shipper
derives from the mode(s) of distribution used. The overall rate may be high, but it enables
cost savings to be realized in lower inventory cost; improved service to the importer’s clients.
We will now examine the varying methods of available freight rates by mode of transport.
6.4. Air freight rates
6.4.1. The Air Cargo Tariff (TACT)
Before 1975, several different airlines published the freight rates and charges applicable
to the movement by air. Though different airlines may have airfreight publications in
different formats or presentations, all publications contain the same basic information.
All rates and charges are published in alphabetical order from airport to airport, excluding
extra charges such as pickup, export and import clearance, delivery and storage charges.
As airlines are free to set their own air freight, and that the same segments are often served
by a number of carriers, or that one carriage may involve more than one air carrier,
coordination between air carriers in respect of cargo rates is necessary. Carriers often agree
on rates in particular bilateral markets as well. “The Air Cargo Tariff’ (TACT) is the result
of the effort from IATA and its member airlines, a joint tariff of IATA members, providing
for a reasonable uniformity of rates and their conditions.
Issuance of TACT Rules and Rates:
For easy reference, TACT Tariff has been divided into three volumes: TACT Rules, TACT

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Rates North America and TACT Rates Worldwide.
TACT Rules contain all general rules, regulations and procedures. TACT Rules are issued
twice a year, in April and October.
TACT Rates North America contains the rates to, from and within the North and South
America and the islands adjacent thereto such as Hawaii, Greenland, Bermuda, the West
Indies and the islands of the Caribbean Sea.
TACT Rates Worldwide contains all others rates than those included in TACT Rates North
America.
6.4.2. TACT Rules of Air Freight Calculation
The air freight of a shipment is calculated by multiplying the "chargeable weight" by the
"applicable rate":
Air Freight = chargeable weight x applicable rate
6.4.2.1. Chargeable weight
The amount of cargo which can be loaded on an aircraft is limited by weight and volume.
Heavy and small loads (also called high density cargo) will tend to reach the weight
limitation of the aircraft before the volume limitation is attained, thus resulting in unsold
volume capacity. High density cargo is cargo which weighs 1kg or more than 1 kg per 6000
cm3 or per 366 cubic inch or more than 1 pound per 166 cubic inch. Light and bulky loads
(also called low density cargo) will reach the volume limitation of the aircraft before weight
limitation is attained, thus resulting in unsold weight capacity. Low density cargo is cargo
which weighs less than 1 kg per 6000 cm3 or per 366 cubic inch or more than 1 pound per
166 cubic inch.
It is, therefore, logical to establish the chargeable weight of a shipment on its gross
weight if it is small and heavy (high density) or on its volume weight if it is light and bulky
(low density) to compensate unsold volume or weight capacity. The CHARGEABLE
WEIGHT can be the ACTUAL GROSS WEIGHT of the shipment or the VOLUME
WEIGHT of the shipment, whichever is higher.
6.4.2.2. Gross weight
The actual gross weight is the weight of the shipment including its packing. The actual gross

95
weight is often used as the chargeable weight in case of cargo which is heavy in relation to
its volume, such as gold, metal parts, machinery, etc. (high density cargo).
The actual gross weight is expressed in kg, with fractions of a kilogram rounded up to the
next higher half kilogram 1/2 kg or in case of lb, rounded up to the next higher full pound 1
lb.
For example:
Gross weight -> Chargeable weight
4.15 kg -> 4 . 5 k g ; 8.80 kg -> 9 . 0 k g
10.40 lbs -> 11lb s ; 2 5 . 8 0 l bs -> 2 6 l b s
6.4.2.3. Volume weight capacity
The volume weight is used as the chargeable weight in case of cargo which is light in
relation to its volume, such as woolen pullovers, chop hats, etc. (low density cargo).
To get the right dimensions per package, measurement is always the greatest length, the
greatest width and the greatest height regardless of the shape of the package. Fractions of
dimensions must also be round up or down to the next higher/lower half centimeter or inch.
The calculation formula for volume weight is, in terms of kg:
+ If the volume is measured in cubic centimeter (cm3): L x W x H / 6 0 0 0
+ If the volume is measured in cubic meter (m3): Volume x1000/6
+ If the volume is measured in inches: Lx WxH/366
+ If the volume is measured in inches and the weight in terms of lbs: L x W x H / 1 6 6
6.4.2.4 Chargeable weight of a shipment consisting of more than one package
Since a particular air cargo rate is based on a shipment, it is important to understand the
difference between the shipment and package. One shipment may consist of one or more
packages. One single air waybill pertains to one shipment. A shipment can also be called a
consignment.
If a shipment consists of several packages, the chargeable weight must be calculated from
the total gross weight and the total volume of the shipment. Therefore, do not calculate the
chargeable weight per package. (The packages are all shipped on one waybill, by one
shipper, to one receiver and at the same rate).

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If a consignment consists of several pieces containing both high and low density cargo, and
if the entire consignment is to be charged at the same rate, the chargeable weight will be the
total actual gross weight or the total volume weight of the consignment, whichever is higher.
 Examples of calculation of chargeable weight:
Example 1: There is one package, the gross weight of which is 4.70 kg and the dimensions
are 60 x 20 x 20 (cm3).
The actual gross weight = 4.70kg => 5 kg
The volume weight = (60 x 20 x 20)/6000 = 4.00 kg,
The chargeable weight is the actual gross weight, 5kg
Example 2: There is one package, the gross weight of which is 4.70 kg and the dimensions
are 60 x 50 x 20 (cm3).
The actual gross weight = 4.70 kg => 5 kg
The volume weight = (60 x 50 x 20)/6000 = 10.00 kg
The chargeable weight is the volume weight, 10 kg.
Example 3: If the dimensions of one shipment are 150.2 x 125.5 x 100.6 (cm3), what is the
volume weight in kilogram?
Volume weight = (150 x 126 x 101)/6000 = 318.1 kg =>318.5 kg
Example 4:
If the dimensions of one shipment are 75 1/8 x 65 1/2 x 55 3/4 (cubic inches), what is the
volume weight in lb?
Volume weight = (75 x 66 x 56)/166 = 1,669.8 lbs => 1,670 lbs.
Example 5:
There is a shipment consisting of two packages. The shipment is to be shipped
from X to Y on one waybill at one rate.
Package A: gross weight 30.4 kg; dimensions 90 x 50 x 60 cm. Package B: gross weight 30.0
kg; dimensions 60 x 50 x 40 cm. What is the chargeable weight?
Total gross weight: A + B = 30.4 + 30.0 = 60.4 kg => 60.5 kg.
Total volume weight: A+B = (90 x 50 x 60) cm + (60 x 50 x 40 cm) = 270,000 cm 3 + 120,000
cm3 = 390,000 cm3 = 390,000/6000 = 65 kg

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The chargeable weight is the total volume weight, 65 kg.
6.4.3. Rates and charges
In determining the air freight, after calculation of the chargeable weight, the type of rate
that applies to the specific shipment is chosen, i.e. applicable rate and charges.
Air Freight = chargeable weight x applicable rate.
There are many types of rates and charges in the business practice. The often quoted rates
and charges are: minimum charges (M), general cargo rates (GCR), class rates or commodity
classification rates (CCR), and specific commodity rates (SCR).
As a rule, air cargo rates are quoted per kg and/or per lb. The rate applies to carriage from
airport to airport by aircrafts, excluding costs of transportation to and from airports, as well
as the outward and inward clearance costs.
6.4.3.1. Minimum charges
For the transportation of every shipment, regardless of weight or volume, a minimum charge
applies from any point of origin to any point of destination. Below this minimum charge, it
would be uneconomical for the airline to transport a consignment, taking into account the
fixed costs involved in handling the small package.
The minimum charge should be taken, as soon as the freight, calculated on the basis of the
chargeable weight and applicable rate, becomes less than the set minimum. The freight
charge therefore will never be lower than the published minimum charge.
The minimum charges vary among the Conference Areas, within or between which the
transportation is executed.
Next example shows tariff from Sao Paulo to Mexico where M stands for Minimum 85 in
local currency which is USD in this case.
Min Weight Local currency USD
M 85
N 5.85
45 4.54
100 2.62

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 300 2.63

Example: One box of shoes with dimension 60x30x30 cm, weight = 5 kg was transported
from Sao Paulo to Mexico City. Volume weight=60x30x30/6000=9 kg Chargeable weight
is 9 kg.
Applicable rate is 5.85.
Therefore freight is USD 5.85 x 9 = USD 52.65
Freight is less than M=USD 85. Therefore Freight must be USD 85.
Rate Class in AWB states M and Rate charge as well as Total states 85
6.4.3.3 Specific commodity rates (SCR)
In order to stimulate regular transportation of large shipments, airlines quote special rates
for specifically designated goods or groups of goods between specifically designated points.
They are lower than the general cargo rates (normal rates). In the application of SCR, a set
minimum quantity of the goods must be taken into account.
A given commodity and its rate will be filed by the airline to IATA who in turn will obtain
permission to apply that commodity rate on a given route to the relevant countries’
governments.
The commodities, for which a specific commodity rate is published, are divided into ten
main groups, which in turn are subdivided into a series of 100 subgroups.

Article Commodity group

0001 -0999 Edible animal and vegetable products

1000-1999 Live animals and inedible animal and vegetable products

2000-2999 Textiles - Fibers and manufactures

3000-3999 Metals and manufactures, excluding machinery, vehicles and electrical

equipment

4000-4999 Machinery, vehicles and electrical equipment

5000-5999 Non-metallic minerals and manufactures

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 6000-6999 Chemicals and related products
7000 - 7999 Paper, reed, rubber and wood manufactures

8000-8999 Scientific, professional and precision instruments, apparatus and supplies

9000-9999 Miscellaneous

6.4.3.3 Class rates (Commodity classification rates - CCR)

Commodity classification rates also apply to specifically designated goods or groups of
goods. CCR is not for transportation between specifically designated points, but within a
certain area e.g. a Conference Area (1 or 2 or 3) or between two areas, for example between
Conference Area 2 and Conference Area 1. It is important to know where the places are - in
which conference area or sub area.
CCR may be lower or higher than the General cargo rates (GCR). They are expressed as a
percentage of the latter.
If no minimum rate is indicated for a CCR, the minimum as published in the GCR applies.
The main commodities to which CCR applies are, for instance:
- live animals (surcharge);
- valuable shipments (surcharge);
- newspapers (reduction);
6.4.3.4. General cargo rate (GCR)
General cargo rate (GCR) applies to the carriage of commodities in general. Shipments for
which no specific commodity rate or class rate applies, must be charged at the GCR. There
are certain commodities for which there are no special rates available. In addition, special
rates are not offered between every point of origin and destination.
Usually, the calculation of freight fee is based on the chargeable weight and the GCR.
Freight charge = package chargeable weight x GCR per lb/ kg.
The GCR is often quoted on the basis of two categories:
- For shipments up to a weight of 45 kg - N

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 - For shipments with a weight of 45 kg or more - Q.
6.4.3.4. Container rates or Freight container. This type of rate applies to goods shipped in
containers suitable for transportation by aircraft. This rate is usually lower than general cargo
rates. This rate can be called ULD rate in case goods are shipped in standard ULDs.
6.4.3.5. Precedence of rates and charges
There are general rules of precedence which apply to determine which final rate will be
used to calculate the freight with respect to a certain consignment.
Firstly, check whether a specific commodity rate (SCR) is quoted for a shipment; if not, then
check whether a classification rate (CCR) is applicable, and if this is not the case, apply the
general cargo rate (GCR). So the sequence of the application of different types of rates will
be: SCR -CCR - GCR.
 Exceptions
In relation to the application of the above-mentioned sequence of rates SCR — CCR —
GCR, there exist exceptions to the general rules.
Attention must be firstly paid to the minimum charge. If the rate calculated as above is
smaller than the minimum charge, the minimum charge shall apply.
Secondly, in case of CCR, if the value of the shipment is higher than the carrier’s liability
limits (e.g. $20 per kg in the Warsaw Convention system), the shipper usually declares the
higher value of the goods in the air waybill, following which who will also pay a valuation
surcharge to the carrier.
Thirdly, in the use of SCR, if the quantity rate for a certain weight break point is lower than
the SCR, the quantity rate shall apply.
6.5. Sea freight rate
We will now examine the sea freight tariff formulation relative to liner cargo rates.
Many freight rates are quoted on a basis of weight or measurement at ship’s option. This
means that the rate quoted will be applied either per ton or on cubic meter, whichever will
produce the greater revenue. In sea transport, liner freight rate is quoted per 1000 kg (1ton)
or 1 m3 ( and 1CBM is equal 1 cubic meter). In short, for transport by liner: 1 CBM = 1000
kg (CBM = cubic meter), whichever is greater.
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The reason for this method of charging is that heavy cargo will bring a vessel to her loadline
before her space is full, while light cargo will fill her space without bringing her down to her
maximum draught. To produce the highest revenue a vessel must be loaded to her full
internal capacity, and immersed to her maximum permitted depth. In most trades, cargo
measuring under 1cubic meter / 1 ton is charged on a weight basis, whilst cargo measuring
1cubic meter or more per ton is charged on a volume measurement basis.
When commodities move in large quantities, cargo ownwers wants to ship by voyage
vesels and freight are susceptible to tramp competition, ship owners often employ ‘open
rates’, that is the rate is left open, so that the shipping line can quote whatever rate it
determines. In so far as chartered vessels are concerned the negotiation is usually under taken
by a shipbroker who communicates with other shipbrokers having a vessel available to hire.
Alternatively, the shipbroker may go direct to the shipowner. The rates are not pre-
determined but are based on economic forces of supply and demand.

Revision questions:
1.
 Shipper: DONG GIA (VN) Cooperation
 Consignee: HERSTERA GARDEN S.L. (Spain)
 Product: Potteries
 CIF term
 Total packages / Total weight / total measurement:
60 packages/ 9.600,00 kilo / 54,00 cbm

The goods are sent directly to the shipping line ABC. Freight and charges at HCMC
port, VN as follows:

 FCL
o O/F : USD 1450/40’
o THC : USD 78/40’
o B/L : USD 25/SET (ORIGINAL)
o TELEX: USD 20/SET
o EBS: USD 65/40’ (for cargo to Asian countries)
o ENS (if required): USD 30/BL (for EU cargo)
o SEAL: USD 5/UNIT

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 a/ Calculate the freight and local charges the shipper shall pay to the shipping line.
b/ Assuming that the shipper wants to know A/F. If you are air freight forwarder, how
much will you offer to the shipper? With the information about freight: (USD/Kg)
(+45:4.5; +100:4.3; +300:4.1; +500:3.5; +1000: 2.8) and you want to add your profit at
0.2 USD/Kg.

2. FDW Global received the 3 below shipments from HCM to ship to Japan with the total
pkgs, total kgs and total volume as follows:

 FCL
O/F : USD 150/20’
THC : USD 78/20’
B/L : USD 25/SET (ORIGINAL)
TELEX: USD 20/SET (SURRENDERED)
EBS : USD 65/20’
ENS (if required ): USD 30/BL ( for EU cargo )
SEAL: USD 5/UNIT
 LCL: Rates are subject to the following local charges (incld VAT)
O/F: USD25/CBM (min 1 cbm).
B/L fee: USD 30/ per set of original B/L
THC: USD 4,00 per w/m
EBS: USD 4,00 per w/m
ENS: USD 30 per shipment (for EU cargo)
CFS fee: VND 90.000 per ton / or 2,00 cbm (min 1 ton / or 2,00 cbm) whichever is greater
(New Port) – exchange rate USD/VND = 22.000
Notes: Weight or Measurement (w/m) conversion is based on 1.000,00 kgs or 1,00 cbm
whichever is greater, min 1cbm
a/ Calculate the total amount including freight and other charges each shipper must pay to the FWD.
b/ Calculate the FWD’s profit at the origin port.

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c/ Shippers would like to know A/F. Pls calculate the amount which each shipper has to pay
to FWD. More given information: the rate the airline offered to forwarder (+45:1.9; +100:
1.5; +300:1.3; +500:1.0; +1000: 0.8) and profit policy of the forwarder is 0.15 / Kg; Min
USD 70 / SHIPMENT
d/ Calculate the FWD’s profit at origin after he consolidated 3 above shipments to transport
by air.
3. Shipper AnhPhuong has a consignment with 2 kinds of cargoes (the same the
applicable rate) with the total packages, total weight and dimension respectively as below:
Apparel: 12 packages / total weight 300kgs / 50x30x60cm
Sportswear: 10 packages / total weight 250 kgs / 80x50x60 cm
What is the chargeable weight of the consignment?

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 CHAPTER 7: TRANSPORT DOCUMENT
1.1. Bill of lading (B/L)
1.1.1. Definition, functions of bill of lading
Bill of Lading/ Ocean Bill of Lading/ Master Bill of Lading is a transport document and
an evidence of the contract of carriage by sea. It also acknowledges that the carrier has
received cargo for shipment or cargo has been shipped on board.
Bill of lading is issued and signed by the carrier, shipowner or carriers’ representatives such
as captains or agents of the carrier after cargo is received for shipment or shipped on board.
Bill of Lading is issued in a set of 3 or 5 originals and copies. Normally, the shipper has
to send originals to the consignee for receiving cargoes at destination. Upon the various
means of payment, B/L may be sent directly from shipper to buyer or through bank systems.
For receiving cargo, normally the consignee has to surrender at least one original bill of
lading to the carrier or his agent. Once one original has been honored, the others stand void.
The copies are issued if required by cargo owners. All copies are worded as “Copy/Copy-
Non Negotiable”.
A bill of lading has three functions:
 A bill of lading is a receipt of goods for shipment
The function as a receipt of goods for shipment is evident in the wording of the incorporation
clause on the face of the bill. At common law, the B/L is only prima facie evidence as to the
number, weight, quantity and condition of the goods shipped on board the ship or received
by the carrier. There are various statements put in the B/L which can affect the status of B/L
as a receipt for the goods shipped on board the ship. These statements may relate to the B/L
as a receipt as to quantity, a receipt as to conditions of the cargo, a receipt as to leading marks
or a receipt as to quantity of the goods themselves. The carrier acknowledges the receipt or
the shipment, in the case of a shipped bill, of the goods. It confirms both quantity and the
apparent quality of the goods. The apparent quality is usually being described as
Received/shipped in apparent good order and condition... It means that if the goods which
are delivered are not in accordance with those described in the B/L, the consignee needs only
point to the B/L in order to set up a case against the ship owner.

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  A bill of lading is an evidence of contract of carriage
A bill of lading regulates the relationship between the carrier and the shipper, the consignee
or other lawful owner of the bill of lading. On the reverse side of the bill are printed
contractual terms of conditions of carriage of goods. They represent either the whole contract
in case of liner trades or a short form of a voyage charter. A B/L has all features of a contract
of carriage regulated by international conventions concerning carriage of goods by sea with
only exception that the terms and conditions are not agreed by contracting parties. All terms
and conditions are in fact pre- established by the carrier and the B/L is signed by only the
carrier. Shipper and consignee are not required to sign a B/L.
 A bill of lading is a document of title
This is the most crucial function of a bill of lading. “A B/L is a document of title” means it
gives the right to ownership of property described on it. The right to ownership means that
whoever legally holds the B/L may claim the cargo. From the moment a B/L has been signed
by (or for) the Master of the ship, whoever shown as the consignee can claim the goods at
discharge. Furthermore, the first consignee can, by endorsing the bill of lading, transfer that
right - the title to the goods - to another person.
As a document of title, B/L is a negotiable document and consequently can be sold or used
as collateral. This permits the initial transfer of ownership from the shipper to the consignee
and also permits subsequent transfers of ownership by handling over the B/L to the new
buyer. The new could resell the cargo and this could go on any number of times while the
ship is still at sea until the eventual buyer presents the B/L to the carrier at port of discharge
for the goods. Transferring a B/L involves not only the transfer of title of goods but also the
right and liabilities as stipulated in contract of carriage from the transferor to the transferee.
As a document of title, the seller of B/L can delay passing the right to ownership until
payment has been made. Therefore, B/L becomes a security for payment. In international
trade this role is almost indispensable. For those traders who are trusted each other, the
payment may be made in advance or cash on delivery.
1.1.2. Classification of bills of lading
Some criteria are used in classifying bills of lading:
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a/ Based on whether the cargo is shipped on board or not
• Received for shipment B/L. This kind of B/L is issued after the carrier has received cargo
for shipment. In fact the cargo has not been loaded on board of the ship yet thus it might be
denied for payment unless L/C clearly states that such a bill is acceptable. Otherwise, the
shipper has to wait until the cargo is shipped on board to exchange a received for shipment
B/L for a shipped on board.
• Shipped on Board B/L: This type of B/L is issued after the cargo has been shipped on
board of a ship. This is the most commonly used type of bill of lading as an importer will
make payment only after the goods are loaded on board and requires shipped on board B/L
for payment. A shipped on board B/L is indicated by the wording “shipped on board”.
A received for shipment B/L can be converted into a shipped on board B/L by master adding
“Shipped on board” or “On board” to the bill with a specific date.
Under FOB, CIF and CFR terms, the shipper is liable for cargo until the cargo is loaded on
board of the ship. The exporter/seller/shipper is therefore should obtain a shipped on board
B/L as an evidence of fulfilling his/her contractual responsibility. Otherwise, he/she would
be denied payment.
b/ Based on negotiability of the bill of lading
• Bearer bill of lading is one with no information about the consignee (i.e. consignee box
is left blank). So whoever holds the bill is the owner of the goods and entitled to receive them
at destination. This B/L is negotiable and transferable.
• Straight bill of lading is a bill with a named consignee. This bill of lading is non-
negotiable because only named consignee has the right to receive cargo. Under this B/L the
shipping company will deliver the shipment to the named consignee upon presentation of
identification. The bill could not be transferable to another party by endorsement and thus
not negotiable.
• Order bill of lading is a B/L where the wording “to order” or “to order of” is added
before any consignee names, if any. In this case, delivery of cargo is made to the order of
any party named in the consignee box. It can be transferred by endorsement. There are

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different ways to make an order B/L:
o To order + ……[blank]: In the consignee box, consignee name is left blank after the
wording “to order”. In this case the cargo is under the order of shipper. The shipper should
stamp and sign this B/L before it is transferred to the consignee
o To order of + consignee: A consignee is named after the wording “to order”. In this
case, the delivery is to be made to the order of the consignee. He/she has the right to receive
cargo or transfer the bill to any third party by endorsement.
o To order of + bank: No real consignee, coming after consignee is the wording “to
order of Bank A”. This B/L is commonly used when a bank wants to control the delivery of
cargo in order to secure payment from the consignee. It only endorses the B/L to the
consignee against receipt of payment or promise of payment.
There are different ways to endorse a bill:
- Blank endorsement: The endorser only signs and does not specify in whose favor it is
made (who is the new endorsee). Thus an order bill of lading becomes a bearer bill of lading.
- Named endorsement: The endorser signs and states a named party to be a new endorsee.
Thus an order bill becomes straight bill of lading and non-negotiable. For example “Please
deliver to Copany A”
- To order endorsement: The endorser states the named party to be a new endorsee after
wording “to order of…”. For example “Please deliver to order of Company A”. Order
endorsement does not change the nature of an order B/L and endorsement can be made as
many times as new endorsers like.
To order bill of lading “to order of Bank..” is commonly used in transactions with L/C
payment method. It could be bought, sold, or traded or used as security for borrowing
money from banks. The point is that the bank involved does not wish to assume the
position of actual consignee with all the responsibilities that may entail; the bank only
wants the B/L as security for payment. So, when the documentary credit is involved, the
consignee will be “To order of bank…” In this case the consignee address will be stated
in the box notify address so that the carrier knows who to communicate with even though

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that party will not have title to the goods until the B/L has endorsed by the bank to the
consignee. Very rarely the buyer does not have the money and the bank is obliged to
become the consignee rather than simply holding the B/L as security, or sell the goods to
another party.
c/ Based on remarks / notation/ clause of ship’s master or carriers on B/L
• Clean Bill of lading:
A clean B/L is free from any adverse/ bad remarks or notations made by the shipping
company about the condition and packaging of the goods being shipped. Wording such
as “said to contain...”, “used package” or “quantity and quality is unknown” does not
make a B/L unclean. Importers and their banks usually insist on a clean B/L for payment
because clean B/L is the prima facie evidence that goods have been shipped on board in
apparent good order and conditions.
• Unclean Bill of lading (Claused bill of lading):
A bill is unclean if it contains clear adverse/bad remarks or notations by the carrier about
the goods received for shipping or their packaging conditions. Examples of such adverse
remarks include: cargo looks wet, damaged or improper packaging. Payment against an
unclean bill of lading is usually rejected. Insurance companies also do not cover for an
unclean bill of lading.
In practice, for a shipment transported by tramp ship, a bill of lading is issued based on
mate’s receipt. Therefore, a shipper should check the mate’s receipt to be sure that there are
no bad remarks about goods’ conditions being shipped on board. If there are any bad remarks
about them, the shipper should take actions to rectify the situation for a clean B/L to be
issued, for example, (1) replacing goods in bad condition by new lot cargo; (2) taking out of
account goods with bad remarks; or (3) offering a letter of indemnity (LOI). By undertaking
a LOI, the shipper commits to reimburse the carrier for any claims made against him due to
the fact that a clean B/L is issued despite improper conditions of the goods or packaging. A
LOI is explicitly a fraud because the shipper and the carrier are actually conspiring to tell the
consignee that the goods are in an apparent good order while they were shipped in the
opposite. Consequently, a LOI is unenforceable because it has been issued in pursuit of an

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illegal act.
d/ Based on consolidation of cargo
• House bill of lading: A house B/L is issued by a Non vessel operating common carrier
(NVOCC), freight forwarder or consolidator to the actual cargo owner as a shipper. A
NVOCC/consolidator can act as carrier or not. In case it is not an actual carrier, it is still
contractual carrier. This means that the NVOCC/ Freight Forwarder/ Consolidator has
responsibility as a carrier providing the carriage of goods to the port of destination. House
B/L has 3 functions as a B/L if it is issued as a negotiable document. This B/L is not approved
by International Chamber of Commerce (ICC). Thus this B/L in many cases is not acceptable
under ICC rules on The Uniform Customs and Practice for DC unless L/C accepts it. To
meet requirements of the cargo owners, NVOCC/ Freight forwarders/ consolidators tend to
replace a House B/L by an FBL.
• Master bill of lading: It is a B/L issued by the shipping line (an actual carrier) to the
NVOCC/ freight forwarder/ consolidator.
In a Master B/L, if the cargo was sent through forwarder, the shipper is often NVOCC/
Freight forwarder/ Consolidator and the consignee is its agent at the port of discharge. But
in some cases although cargo was alo sent through forwarder, shipper wants to recceive
master B/L, forwarder can try to arrange with the shipping line to get a master bill as
shipper’s requirement.
e/ Based on method of chartering
• Liner B/L: In liner chartering B/L is the only evidence of contract of carriage of goods.
It contains all contractual terms and conditions regulating responsibility of parties involved.
Thus, a liner B/L is called a long form B/L. One of the most widely used standard form of a
liner B/L is CONLINEBILL drafted by Baltic and International Marine Council (BIMCO).
This sample B/L is used for the liner services for carriage general cargo by sea. The latest
draft is CONLINEBILL 2000.
• Charter party B/L or B/L to be used with charter party. A charter party B/L is issued in
cases where the goods are transported under a voyage charter party. On a Charter party B/L

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is a statement / wording of “To be used with charter party”. Unlike a liner B/L, the back page
of a charter party B/L contains only some clauses as most terms and conditions of the contract
of carriage are included in the charter party. Thus a charter party B/L is also called a short
form B/L. For example, CONGENBILL is a standard form of Charter party B/L developed
by BIMCO for using with a standard form of the charter party GENCON. CONGENBILL
contains only some clauses such as Paramount, General Average and Salvage, Both to blame
collision.
f/ Based on transshipment
• Direct bill of lading. This is a port - to - port B/L in which goods are transported directly
from a port of loading to a port of discharge without any transit.
 Through bill of lading is issued for transportation of goods from a port of loading to a
port of discharge by two or more ships. In this case goods were transited and reloaded from
one ship to another. Characteristically, a through bill of lading:
- Contains a clause permitting goods to be transited;
- Specifies port of loading, port of discharge and carrying ships;
- Issuer of a through bill of lading takes whole responsibility for loss of or damage to
cargo transported even when cargo is damaged by the fault of another carrier.
• Multimodal bill of lading / combined transport bill of lading: It is a bill of lading used
for transporting goods from ports to ports by different modes of transport, example, sea, air
and road. This type of bill of lading is also termed B/L for combined transport shipment or
port to port shipment, negotiable FIATA multimodal transport B/L and Multimodal transport
document. Characteristically, this bill of lading:
- Can be issued as a negotiable bill
- Contains information about places of receiving cargo for shipment and places of
delivery besides port of loading and port of discharge
- Is issued by a multimodal transport operator who takes full responsibility from receiving
goods for shipment until delivery of to the consignee
- Contains clauses allowing transshipment during the transportation process.

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g/ Other types of bill of lading and sea transport documents
 Forwarder’s Certificate of Transport (FCT): By issuing a FCT document to the
shipper, the freight forwarder is responsible for the delivery of the consignment at destination
through a delivery agent appointed by him to the holder of the document in accordance with
the conditions stipulated on the reverse of the FCT. The FCT can be handed over to the
shipper immediately after the consignment has been handed over to the freight forwarder for
shipment. The freight forwarder is only responsible for the forwarding and delivery of the
goods.
 Forwarder Certificate of Receipt (FCR). The FCR document enables the freight
forwarder to provide the consignor with a special document as an official acknowledgement
that he has assumed responsibility of the goods. The FCR can be handed to the consignor
immediately after the consignment has been received by the freight forwarder. By
completing the FCR the freight forwarder certifies that he is in possession of a specific
consignment with irrevocable instructions for dispatch to the consignee shown in the
document or to keep it at his disposal. The FCR will primarily be used when the supplier
sells the goods EXW and needs to prove that he has complied with his obligations to the
buyer by presenting a FCR. The FCR is not negotiable. As the delivery of the consignment
to the consignee does not depend on the handing over of this document, only one original is
issued.
• Surrendered B/L
At the port of destination a carrier often requires consignees to present (or surrender) bills of
lading for cargo to be released. Sometimes when the voyage is short, cargo could arrive
before the consignee receives original bills of lading. In such cases, the consignee could
arrange with the shipper to surrender / present the original B/L to the carrier at the port of
loading. The carrier will stamp “SURRENDERED” on the bill, which means the original
B/L has been surrendered and the consignee is not required to do that at the port of
destination. The carrier also faxes the surrendered B/L or sends a message to his agent at the
port of discharge instructing to deliver the cargo to the consignee without presenting of the
original B/Ls.

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 • Sea waybill
A sea waybill is a B/L that is similar to a B/L in almost all respects except it is not
negotiable. A sea waybill is ideal where a document of title is not required, for instance, (1)
shipment between associated companies or branches of multinational companies where no
documentary credit transaction is required; (2) Open account sales which arise where the
goods are shipped to an agent for sale at destination; (3) when the buyer has no intention to
sell the goods while the ship is in transit, the negotiable document is not necessary; (4) when
transactions between companies where the security of a documentary credit transaction is
not required.
Advantages of a sea waybill include: (1) no requirements to send a document of title to
destination to secure delivery because delivery is made to the nominated consignee against
proof of identity; (2) No possibility of a requirement for a letter of indemnity for delivery of
cargo without a bill of lading; (3) there is no charge for producing sea waybill; and (4) a sea
waybill can be a paper or an electronic message.
The biggest disadvantage of a sea waybill is the lack of negotiability. So a sea waybill is
a non-negotiable document and cannot be traded as traditional bills of lading.
A seaway bill is not a document of title so that it does not have to be presented at discharge
port. The shipping line or its agent simply has to satisfy itself that it has properly identified
the consignee and then hand the cargo over.
• Third party B/L
Normally the shipper in a B/L is the beneficiary under a L/C. A third party B/L is one
which the beneficiary of the L/C is other party than the shipper. It is used in cases where an
exporter exports goods via a middleman. The middleman is the shipper on the B/L but the
beneficiary party of the L/C is the exporting company.
• Mate’s receipt
It is a document recording quantity and description of the cargo during the process of
cargo loading on vessels. In theory, the mate’s receipt is handed to the shipper who would
exchange it for a signed B/L but in reality it happens when shipper delivers the goods to
master/ captain under a voyage charter party.

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• Switch B/L
Switch B/Ls are original B/Ls that can be surrendered to the carrier or his agent in
exchange for a new set of bills in which some of the details, such as those relating to the
name and address of the shipper, the date of issue of the bill or the port of loading, have been
changed. This practice may be adopted for a variety of commercial reasons. On the other
hand, seller may conceal the source of the goods where such source is politically sensitive.
1.1.3. The contents of B/L
Almost all B/Ls are similar in appearance but the terms and conditions may differ. It is
a double side printed document containing information as follows:
- On the front side: It is usually designed as box-layout format containing information
about carrier, shipper, consignee, cargo, B/L number, port of loading and discharge, ship’s
name, place of receipt and place of delivery, number of original B/Ls, freight, details about
cargoes, signature, date of issuing and loading.
- On the back side: There are terms and conditions regulating responsibilities of parties
involved such as carrier, shipper and consignee. In case of voyage chartering almost all terms
and conditions are included in the charter party. In different from voyage chartering, liner
B/L has numerous printed clauses presenting the terms and conditions of contract carriage
that will be described later in this chapter.
Contents of front side of B/L
• Carrier: Information about the carrier includes phone number, address of the main
office. A carrier is a shipping company that is liable for the transportation of goods and
issuing a bill of lading after receiving or loading of cargo onto a ship.
• Shipper: Information about a shipper must contain phone number and address of the
main office. A shipper is usually the seller/exporter in sale contract. Generally, he/she is the
beneficiary of L/C. In some cases shipper maybe a representative of the seller/exporter such
as a trading representative or a logistics company authorized by the seller/exporter for
handling all exporting procedures.
• Consignee: Information about a consignee must include the address of the main office.
A consignee is usually the buyer/importer in sale contract. The carrier will inform the

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consignee when the goods arrive using the consignee’s address specified on the bill. If the
bill of lading is ‘To order” (instructed) B/L, then the box “consignee” will contain “Order”
or "to order".
• Notify address: Information about a notify party includes an address where the carrier
will send the notice of arrival besides the consignee. For example, cargo is consigned to a
bank but the actual consignee is the buyer. In this case in the consignee box is the bank and
the address of the buyer/importer will appear at the “notify address” box. On arrival, the
carrier will notify to the bank and the buyer/importer.
• B/L number (B/L No.) It is generally listed in the upper right corner of the bill of
lading in order to facilitate the contacts and check the work.
• Name of vessel - Port of Loading - Port of discharge.
In case of trans-shipment, through B/L or combined transport B/Ls are used. On the B/L
there will be stated in addition place of receipt, place of delivery as well as first carrier (Pre
carriage by), Shipping name and voyage (Ocean vessel, voyage number);
• Description of goods: In the L/C the cargo should be provided in accordance with the
letter of credit agreement. There should be number and kind of packages, gross weight (MT,
Kg), measurement (CM, Cft). Information of goods to be loaded is furnished by the shipper
in shipping instruction.
• Number of original B/Ls: As usual, B/Ls are issued in a set of 3 originals. In case of
a seaway bill, originals are not applicable.
• Date and place of issuing: Date of issuing can be the date when the goods are received
by the carrier or shipped on board.
• Signature of the issuer: A bill of lading can be issued by the carrier, a representative
of the carrier such as the ship’s Master or the agent of the carrier.
• Information about freight: Freight can be paid at port of loading which is evidenced
by a statement on the bill of lading such as “Prepaid” or “Freight prepaid”. When the freight
is paid at port of discharge, the statement should read as “Freight to collect” on the bill of
lading.
• Date of laden on board. After goods are laden on board and bill of lading is dated, a

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‘received for shipment bill of lading’ becomes a “shipped on board bill of lading”. Buyers
under terms FOB, CIF and CIF of Incoterms always require the shipper/seller to present a
shipped bill of lading for payment and the date of delivery of the goods is considered the
date when the goods are laden on board, not the date when the goods are delivered to the
carrier.
Content on the back page: are terms and conditions of carriage. The standard form of
liner B/L is Conlinebill introduced by BIMCO. Conlinebill includes following clauses:
• Clause 1 - Definition
Clause 1 gives the definition of used terms in the B/L including: the shipper, receiver,
consignor, consignee, the holder of the B/L, the owner of the cargo, any person entitled to
possession of the cargo.
• Clause 2 - Notification
This Notification Clause is new and is designed to expressly exclude the carrier from any
liability in the event that the carrier fails to notify the arrival of the cargo to the party stated
under “Notify Party” on page 1 of CONLINEBILL 2000. The details given in the Notify
Party box are solely for the information of the carrier.
• Clause 3 - Liability for Carriage between Port of Loading and Port of Discharge.
This clause states that scope of liability of the carrier - the carrier is not responsible for loss
or damage to cargo arising prior to loading, after discharging or with respect to deck cargo
or live animals.
In Conlinebill 2000, this Clause has been amended to incorporate the latest edition of
BIMCO’s standard General Clause Paramount, supplemented with some additional
provisions to cater for specific needs and protect the overall balance of the document.
Although the carrier is free to substitute the vessel (Clause 6) and to transship, lighter, etc.,
(Clause 7), Clause 3 ensures that the carrier cannot escape the responsibility for the cargo
while it is in the hands of another carrier. Consequently, the carrier remains responsible for
the settlement of any cargo claims that may arise while the cargo is in the custody of his sub-
contractors.
Because the extent of the carrier’s liability is dependent upon the way in which Page 1 is

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filled in, it is essential that the “Port of loading/discharge” and “Pre-/On-carriage” boxes are
filled in with great care, since their contents will determine the scope of the contract.
Sub-clause 3(b) deals with the carrier’s liability for delay situations and consequential loss
or damage other than loss of or damage to the cargo.
Finally, in order to consolidate all provisions concerning the carrier’s liability, an “aggregate
liability” provision has been added as a new sub-clause 3(c) to avoid that the accumulated
damages for which the carrier can be held liable under Clause 3, or the Additional Clause, if
applicable, and any other clauses, could eventually exceed the limit of liability envisaged
under either Clause 3 or the Additional Clause, if applicable.
• Clause 4 - Law and Jurisdiction.
This clause defines where the disputes are settled and the procedures of dispute settlement.
Disputes arising out of or in connection with this Bill of Lading shall be exclusively
determined by the courts and in accordance with the law of the place where the Carrier has
his principal place of business, as stated on Page 1, unless otherwise agreed
• Clause 5 - The Scope of Carriage
This clause states that the intended voyage shall not limited to the direct route but may
include any proceeding or returning to or stopping or slowing down at or off any ports or
places provided they are reasonable and connected with the carriage including bunkering,
loading, discharge or other cargo operations and the maintenance of the ship and crew since
the ship is engaged in a liner service.
• Clause 6 - Substitution of Vessel
By the provision of this clause, the carrier may carry the goods or part of them directly or
indirectly to the port of discharge, either by the said ship or by another ship belonging to him
or to others or even by other means of transportation.
• Clause 7 - Transshipment
This clause allows the carrier to transship, land, store the cargo either on shore or afloat and
reship and forward the cargo to the port of discharge.
• Clause 8 - Liability for Pre- and On-Carriage
In case of pre-carriage or on-carriage of the cargo, the carrier shall contract as the merchant’s

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agent only and the liability of the carrier for loss or damage to the goods shall be limited to
that part of the carriage between the port of loading and the port of discharge even if he/she
collected the freight for the whole carriage. This clause is typically use for goods shipped in
through transport and in this case on the front of the B/L the boxes “Pre-carriage by”, “Place
of receipt”, “Place of delivery” have to be filled in.
• Clause 9 - Loading and Discharge
This clause deals with who has to arrange the handling of the goods: The carrier or his agent
are responsible for the loading and discharge, the merchant is responsible before loading and
after discharge.
• Clause 10 - Freight, Charges, Costs, Expenses, Duties, Taxes and Fine
According to this clause:
- The freight which must be prepaid whether actually paid or not shall be considered as
fully earned upon loading and is non- refundable in any event. Freight and/or charges are
payable by the merchant to the carrier on demand, unless otherwise specified.
- All expenses made for fumigation, gathering and sorting loose cargo, repairing
damage due to excepted causes will be paid by merchant
- Fines, penalties, costs, expenses and losses which the carrier, ship or cargo may incur
through non-observance of customs regulations and/or import or export regulations will be
paid by the merchant
- Double of the amount of freight should be paid by the merchant in case there was
incorrect declaration of contents, weights, measurements or value of the cargo.
• Clause 11 - Lien
The carrier has a right to lien over cargo in case the freight, charges or other expenses are
not paid as agreed.
• Clause 12 - General Average and Salvage
General average shall be adjusted, stated and settled in London according to the current
version of the York-Antwerp Rules 1994 at the time of the incident leading to the general
average.

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 • Clause 13 - Both-to-Blame Collision Clause
In case of both to blame collision, the cargo owner will indemnify the carrier against all loss
or liability to the other ship owner if such loss or liability was paid by the other ship owner
and then claim from the carrier.
• Clause 14 - Government directions, War, Epidemics, Ice, Strikes, etc.
This Clause defines cases when the carrier is not liable for loss of or damage to the cargo in
case of listed events. This clause is completely in agreement with the international
conventions concerning B/L.
• Clause 15 - Defences and Limits of Liability for the Carrier, Servants and Agents
This clause stipulates defences and limits of liability for the carrier, servants and agents in
accordance with the international convention that is chosen for governing this B/L. It usually
Hague rules 1924 or Hague Visby rules 1968.
• Clause 16 - Stowage
This clause defines the right of the carrier to carry container stuffed by him or received in
stuffed condition on deck or under deck without notice to the merchant.
• Clause 17 - Shipper-Packed Containers, trailers, transportable tanks, flats and pallets
Recognising that CONLINEBILL may be used in the container trade, this clause has been
added to provide for defences from liability available to the carrier in connection with
damage of cargo shipped in containers by the merchant. This clause also provides that the
carrier does not have to insert the clause “On deck at shipper’s risk” when he carries
container.
• Clause 18 - Return of Containers
Under this provision the Merchant is liable to the carrier for any loss of, damage to, or
delay, including demurrage, to containers and other portable stowage units while in his
custody.
• Additional Clause
This additional clause is only valid on the B/L if the contract of carriage is subject to Carriage
of Goods by Sea Act of the US, 1936” (COGSA 1936). According to the US COGSA 1936,
the limit of responsibility is USD 500.00 per package or customary freight unit instead of

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the limits set out in Hague 1924, Hague Visby 1968.
1.2. Voyage charter party
1.2.1. Definition of a voyage charter party
A voyage charter party is a document regulating the relationship between the carrier and
the charterer according to which the carrier commits to use whole or part of a ship for
transporting cargo from a port/ports of loading to a port/ports of discharge and the charterer
commits to pay monetary reward, called freight. This freight can either be in the form of a
lump-sum payment, or pro-rata in respect of the quantity of cargo carried on the cubic or
deadweight basis.
A voyage charter party is applicable when the charterer has a large amount of cargo to be
transported.
1.2.2. Standard form of a voyage charter party
A voyage charter party contents various complicated technical terms and conditions.
Therefore there are standard forms are used for providing more conformity of the terms and
conditions of a voyage charter party. Standard forms of a charter party are published by
national, international maritime organizations or dominant shipowners and cargo owners.
There are two groups of standard forms:
- General standard forms include standard voyage charter parties that can be used for
transportation of different types of cargo. The most widely used in this group is the
GENCON published by Baltic and International Maritime Council (BIMCO). GENCON was
first introduced in 1922 and revised in 1976 and 1994.
- Specific standard forms used for certain type of cargoes or certain sea routes.
Examples of standard forms of voyage charter parties are:
+ For transporting oil: Exxonvoy 1969, Mobilvoy 96, Shell voyf5 and Gasvoy...
+ For transporting coal: Medcon, Sovcoal 1962, Polcoalvoy 1971, and Amselsh.
+ For transporting ore: Orevoy and Sovoreco.
+ For transporting grain: Norgrain 89, Auswheat, and Baltimore Berth grain.
Contracting parties can amend, delete or add new clauses to a standard form by creating
fixture notes that will become parts of charter party.
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1.2.3. Contents of a voyage charter party
• Structure of a voyage charter party:
Part I: Contracting parties can specify certain introductory clauses which stipulate the
names of the parties, the carrying ship, the port of loading and the port of discharge,
information of the chartered ship such as name, carrying capacity, dead weight tonnage, the
position of the ship at the time of contracting, laycan, port of loading, port of discharge,
information of cargo etc. Information in part I is changeable depending on each voyage.
Part II: Conditions and terms of a charter party are included in Part II
• Main terms and conditions
a/ Contracting parties
Contracting parties are the carrier and the cargo owner and shipbroker or their agents.
The carrier can be an actual ship owner or a disponent ship owner obtaining the right over a
ship by a time charter party. Information about contracting parties and their agents, and a
shipbroker (if yes) includes name, address and other information as arranged (telephone,
fax).
Date and contracting parties can be inserted in relevant boxes as in a GENCON standard
form as follows:
“IT IS THIS DAY MUTUALLY AGREED, between
Owners/Disponent Owners/Time-chartered Owners/Chartered Owners (name, address)
................................................................................................. ..
And Charterer and/or charterers (name, address)
Or in case the charter party is agreed via agent:
“IT IS THIS DAY MUTUALLY AGREED, between Chartering company (name, address)
on behalf of as the Owners/Disponent Owners/Time-chartered Owners/Chartered Owners
... .............................................................................................................. ..
And Charterer and/or charterers .............................................................................
b/ Carrying ship
In a voyage charter party there is a ship clause with information about the carrying ship
including name, carrying capacity, gross tonnage, position of the ship at the time of

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contracting. Other information concerning the carrying ship such as size of ships (length,
beam), draught, call sign, year of built, port of registration, classification, number and size
of cargo holds, grain/bale capacity of the holds, size of hatches, type of engines, speed,
derricks etc. should be stipulated. The contracting parties can also agree about a right of the
ship owner to substitute a sister ship with the same specifications.
c/ Ports clauses
The charterer is under an obligation to nominate a port or berth. This may be agreed as:
- A fixed port, for example, “Cat Lai Port” or
- A group of ports, for example, “CaiMep/Cat Lai” or
- A range of ports, for example, “CaiMep/PTSC/Catlai”.
In case of many ports of loading and discharge, parties need to clarify the order of
ports’entering.
The charterer is liable for pointing a safe port in respect of maritime and political aspects and
the ship owner is liable to deliver a ship to an agreed port/ports.
- A maritime safe port means a port where the ship can access always afloat or safely
aground.
- A political safe port means a port where there are no wars or warlike operations.
In the event that the charterer cannot appoint an exact port/ports upon contracting, parties
can choose range of ports, for example, Ho Chi Minh city ports.
d/ Cargo clauses
The charterer has an obligation to provide cargoes for loading on board the ship wholly
or partly. It is a common practice that a charterer will specify a range of cargoes that could
be loaded on board of the ship on arrival, for example wheat or maize and/or rice.
The amount of cargo to be transported is agreed in volume (Cubic feet, cubic meter) or
weight (LT, MT, ST) with an allowable error. When the charterer commits to provide a “full
and complete cargo” this creates a duty to provide cargo for the whole of the ship. If the
charterer fails to do so, he/she will be liable to pay the ship owner freight for unloaded cargo
called dead freight.

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The charterer should be informed about an exact quantity of the goods to be loaded on the
ship by the ship owner before the ship’s arrival. The cargo owner should provide this quantity
to load on the ship. Failure of supplying cargo causes the charterer’s payment of dead freight.
For example, a voyage charter party was agreed for transporting rice with a weight of 10,000
MT 5% MOLOO (more or less at Owner’s Option). Before arrival the ship owner sent a
notice that the quantity of cargo to be loaded is 10,000 MT + 5% but the charterer supplied
only 10,000 MT. In this event, beside the freight for 10,000MT, the charterer was liable to
pay the ship owner dead freight for 500 MT (5% of 10,000 MT).
Box 12 of Gencon 1994 stipulates that the parties must state the quantity of goods to be
shipped; if not a full and complete cargo the phrase 'part cargo' must be used. Clause 1 in
Part II of Gencon states that if the cargo is to be shipped on deck this remains at the charterer's
risk.
e/ Freight clauses
Freight will usually be stated in express terms of a voyage charter party. The parties
should agree the following:
• Currency to be used for payment. US dollar is the most widely used for payment in
international transport by sea.
• Freight unit.
The quantity of cargo will usually determine the amount of freight payable. The quantity
can be measured in several ways depending on the types of cargo. For heavy cargo it should
be measured by weight (long ton, metric ton, short ton, pound)
Measurement (bulky) cargoes should be measured by cubic measurement (cubic feet or cubic
meter), gallon, etc. For lump-sum freight, the freight unit can be net tonnage (NT),
deadweight cargo capacity (DWCC).
• Freight rate.
If freight is determined by weight or volume of cargo, it is essential that the contract
specifies when the quantity is assessed. This will be done either at the port of loading stated
on the bill of lading (intaken quantity) or at the port of discharge (delivered quantity). Intaken

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quantity is used for calculating prepaid freight but in case of freight to collect, both intaken
or delivered quantity can be used for calculating freight.
• Loading/discharge expenses clauses.
Unlike the liner chartering, voyage charter freight can be agreed in different ways
depending whether loading, trimming/stowage and discharge expenses are included or not.
The parties can use below terms. These terms are incorporated with or written after freight
rate to clarify whether the sea freight includes loading, discharge, trimming or stowage costs
or not. For example: 20 USD/MT FIOS or 25USD/MT Liner terms.
- Liner terms/ Berth terms/ Gross terms: It is an “all included freight” meaning besides
carrying the goods, the shipowner is liable for loading, dunnaging, trimming/stowage and
discharge. All these expenses are included in freight.
- Free in and out (FIO): This freight term includes the sea freight only, but no loading
and discharge costs. This means the charterer or his agent must pays for costs of loading/
discharging cargo.
- Free in, free out and trimming/stowage (FIOS/FIOT): In fact this is same as FIO and
makes it clearer to avoid any dispute. FIO freight does not specify that trimming/stowing
costs are not included although in transport practice it is understood not included as the
person who is in charge of loading must takes responsibility for trimming/stowage, free in
should always incorporate free trimming/free stowage. Therefore, FIO is better to be agreed
as FIOS or FIOT.
- Free in (FI): besides sea freight, this includes discharge costs only (i.e.no loading
costs, trimming costs are covered). It means the charterer or his agent is liable for loading
and the shipowner is liable for carrying and discharge. In some charter parties this terms can
be specified as FILO - free in liner out. FILO states more clearly the liability of the charterer
for loading and the ship owner for discharge.
- Free out (FO): This sea freight includes loading and trimming/stowage costs but no
discharge costs. That means the charterer is liable to pay discharge costs.
All these terms can be used in a voyage charter party but which term to choose is depends

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on the liability of the charterer according to terms in the sale contract. For example, in case
of FAS terms, the buyer is responsible for loading, transport and discharge cargo. In this case
the buyer can use Liner term that means all loading, trimming and discharge expenses are
included in freight. In case of FOB, the seller is responsible for loading and the buyer is
responsible for transport and discharge. So the buyer as the charterer does not have to pay
for loading and trimming. In this case, the buyer as a charterer should use FIS instead of liner
terms to exclude loading and trimming expenses from freight.
• Methods of freight payment
A payment for freight can be prepaid, to collect or partly prepaid and partly to collect
- Freight prepaid. It means that freight is paid after cargo loaded on board and the bill
of lading issued. Freight is non-returnable whether the ship and/or cargo lost or not lost. In
a contract of carriage, it can be agreed as “Freight payable within 3 banking days after signing
and releasing bill of lading and non-returnable even if the ship and/or cargo is lost”. In case
of prepaid freight there should be a statement of “Prepaid” or “Freight prepaid” on the bill
of lading.
- Freight to collect. Freight is payable on delivery of cargoes. A consignee can make
payment depending on the payment clauses of the contract as follows:
+ Freight is payable upon commencement of discharge;
+ Freight is payable upon discharge: payment should be made after commencement of
discharge but before completion of discharge;
+ Freight is payable on completion of discharge.
Freight is paid by the charterer and in the event when the shipper is a charterer the freight
should be always prepaid.
- Freight can be partly prepaid and partly to collect and it is applicable only in the event
when the consignee is the charterer.
Refer: Box 13 of Gencon 1994 , Clause 4(a), Box 14
f/ Layday
Laydays refer to the time when a ship must present itself to the charterer. If the ship

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arrives before the specified laydays, the charterer does not have to take control or start
loading (depending on the type of the charter). Ships are not like trains and cannot confirm
absolute timetables for being in port especially when they are trading as under tramp
chartering. So, in a charter party there is always agreed time when the ship should be at the
port for loading the cargo called layday. If the ship arrives after laydays, the charterer has
the right to cancel the contract. So laydays are often presented by the term ‘Laydays and
Cancelling’ the short form of which is ‘Laycan’. Layday can be agreed by:
- An axact day, for example, 10th January 201x. In this case layday and cancelling day
is 10th January 201x.
- A period of time, for example, Layday: 10th January 201x - 15th January 201x, that
is, the layday is 10th January and the cancelling day is 15 th January 201x.
Before arriving to a port of loading and discharge, the ship owner tenders an Estimated Time
of Arrival (ETA). If the ship arrives at the port earlier than the agreed layday, the charterer
does not have to load or discharge cargo. But if he/she agrees to load or discharge before
layday, the time allowed for loading and discharge will be counted.
In case of late arrival, the charterer should inform the ship owner whether to continue the
contract of carriage prior the ship’s arrival to the port. Refer: Box 9 of the Gencon standard
Box 21, Clause 9
Notice of Readiness (NOR) is tendered only when the ship should (1) be considered arrived
(arrived ship) and (2) be in all respects ready for loading (the ship is in all respects ready to
load/discharge).
The moment from which the ship is considered arrived depends on a type of the charter
which regulates the lay time. Some types of charter available are as follows:
- Port charter: The charter in which the port (its name) is specified as a place of
loading/unloading. Correspondingly, the ship is considered arrived at the agreed place of
destination when it arrives at the port’s commercial zone where ships usually wait for loading
or unloading. The ship is considered arrived even if it does not come to the place where cargo
will be handled;

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 - Dock charter: If the place of destination of the ship is a dock or there is a special
clause that it should be specified by the charterer, the ship is considered arrived since its
docking;
- Berth charter: If the charter indicates a berth, the ship is considered arrived since the
time it is placed to the berth. In this case any risks of delay before the ship is placed to the
berth fall on the ship owner.
A ship’s readiness usually comprises two aspects:
- Physical readiness: That is actual readiness of holds and hatches for loading and
discharge.
- Legal readiness: It is understood as the absence of any administrative and legal
obstacles to the beginning of loading or discharging operations. The ship should be granted
free pratique, not be subject to customs or other restrictions.
So, a ship is considered arrived ship and ready for loading and discharge if it satisfies 3
following conditions:
- Be at a place stipulated in the voyage charter party (VCP)
- Be ready for loading/discharge in all respects;
- NOR is tendered and accepted by the charterer properly.
It should be noted that NOR to load the goods is compulsory while there is no requirement
of a NOR to discharge the goods unless it stipulated in the charter party. Furthermore, NOR
can be tendered in writing, orally or by telex etc.
Some charter parties have a clause entitling the ship owner the right to choose an alternative
place of destination if because of obstacles which cannot be prevented, it is impossible to
reach a place destination determined in the charter without wasting unreasonably long time.
The ship is considered arrived after reaching the chosen place. Such obstacles may be: Ice
conditions, blockade, tides and falls of tides and port congestion. For example, clause 18 -
General Ice Clause of GENCON 1994.
g/ Laytime
Laytime is the amount of time allowed (in hours or days) in a voyage charter for the

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loading and unloading of cargo. The shipowner will try to negotiate in favor of a short period
of laytime as he will want the ship loaded as swiftly as possible so that he can remain on
schedule, whereas the charterer will arrange for a greater amount of laytime in case of any
unforeseen circumstances which may result in delays of the loading. If the laytime is
exceeded, demurrage is incurred. If the whole period of laytime is not used by the charterer,
despatch may be payable by the shipowner to him.
The point when laytime commences is determined by the time that Notice of Readiness
(NOR) is given and accepted.
Laytime can be expressed in different ways: 1) a number of days or hours, 2) a fixed rate of
loading/ discharge or 3) loading/discharge time of the cargo within a reasonable period of
time as is customary at the port.
Laytime in days:
- Running days: A running day is a continuous period of 24 hours which, unless the
context otherwise requires, runs from midnight to midnight. Laytime in this case includes
not only working days but also Sundays and Holidays.
- Working Days: It is when normal working is carried out in a port. A working day
excludes Sundays and official holidays at this port. For example, in some ports the first of
May is an official holiday but in others it is a working day. In order to avoid
misunderstanding parties should check the official holidays at ports of loading and port of
discharge. The number of working hours per working day is dependent on the custom of
such ports.
- Working Days of 24 Hours: It is a period of time which contains 24 normal working
hours at the port of loading and discharge. If it is the custom of a port that 8 hours represents
the normal working time per day then a working day of 24 hours would be considered as
three working days.
- Weather Working Day (WWD): These are days on which the loading and discharge
are normally carried without interference due to the weather. If such interference occurs (or
would have occurred if work had been in progress), they shall be excluded from the laytime.

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The WWD is considered to extend from midnight to midnight.
In this case laytime can be stated as “The cargo to be loaded or discharged within 5 WWD”.
In practice there are several ways to specify a WWD:
- WWDSHEX: Weather working days, Sundays and holidays excluded.
- WWDSHInc: Weather working days, Sundays and holidays included.
- WWDSHEUU: Weather working days, Sundays and holidays excluded unless used.
- WWDSHEXEU: Weather working days, Sundays and holidays excluded even if used.
• Laytime as a fixed rate of loading/discharge:
For cargoes transported in bulk such as grain, bauxite, phosphate etc., laytime usually is
not fixed by days but by a certain rate depending on the loading/discharge rate of the ports
as follows:
- The cargo to be loaded at the average rate of 3000 MT per WWDSHEXUU.
- The cargo should be loaded/discharged at average rate of 300 MT per working hatch
per WWDSHEXEU.
• The laytime is determined inexactly. In this case the following clauses are used:
- As fast as can (FAC condition);
- Customary quick despatch (CQD);
- As customary;
- In accordance with the custom of the port.
CQD means that the charterer must load or discharge as fast as reasonably possible in the
circumstances prevailing at the time of loading or discharge. In this case there is no provision
for demurrage or despatch for the time used for loading and discharge.
• Beginning of the laytime:
Whether laytime starts to count is dependent upon whether NOR is tendered and accepted or
not. Often the charter provides that laytime begins to count upon expiry of a certain period
of time after NOR is tendered. Thus, the standard form of charter Gencon 1994 provides that
laytime for loading and discharge commences at 13:00 if the NOR is given before 12.00
inclusively, and at 06.00 next working day if the NOR is given during office hours after

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12.00. Refer clause 6 - laytime of GENCON 1994
• Time excluded from laytime:
The following clauses are often included in charters: "Time lost in waiting for berth is
considered as laytime”, "Whether in berth or not” (WIBON), “Whether in Port or not
(WIPON)”, “Whether in Customs clearance or Not (WICCON)”, “Whether in free pratique
or not (WIFON)”, "Time to count twenty-four hours after arrival at or off the Port”,
"Demurrage in respect of all time”, "In turn not exceeding 48 (or 24) running hours”. All
these clauses are used to protect ship owners’ interests because under such conditions,
laytime begins to count before the ship’s arrival at the specified place. Such clauses as “time
lost in waiting for berth is considered time of loading/discharge” (Gencon), "Whether in
berth or not”, “Free in turn,” and “In turn not exceeding 48 (or 24) running hours” allow the
shipowner to begin to count the lay time upon arrival in the port even in case of the absence
of a free berth.
• Demurrage or despatch:
- Dem - Demurrage: It is an amount of money paid to the ship owner by the charterer
for failing to complete loading and/or discharging within the time allowed in the Charter
Party. The rate of demurrage, normally an amount per day or pro-rata for a part of a day is
agreed in the Charter Party. For example, “Demurrage to be paid at the rate of 4800 USD
per day or pro rata for a part of a day”.
When demurrage becomes payable, it is said of a ship that she is on demurrage. Once a
ship is on demurrage, no deductions are made for the excepted periods, such as weekends,
in the calculation of the demurrage charges; hence it is said that “once on demurrage, always
on demurrage”.
- Despatch: It is the money payable by the shipowner if the ship completes loading or
discharge before the laytime has expired. If, for example, a Charter-Party provides for 6
WWDs for loading and the charterer uses 5 WWSs, he/she is entitled to 1 day’despatch
money. As marine custom despatch rate is usually a half of demurrage rate. A charter party
can stipulate demurrage/despatch clauses as “Demurrage/despatch to be paid at the rate

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of4800/2400 USD per day or pro rata for a part of a day ” in which 4800 USD refers to
demurrage rate and 2400 USD - despatch rate or “Demurrage/despatch to be paid at the rate
of4800/despatch is half of demurrage per day or pro rata for a part of a day ” which can be
written in short form as “Dem/Des: USD 4800/DHD PDPR ”
Despatch can be agreed for:
+ “All working time saved” or “All laytime saved" - that is, all time saved for the ship
from the completion of loading/discharge to the expiry of the laytime excluding any time
and periods excepted from the laytime.
+ “All time saved” - the time saved for the ship from the completion of
loading/discharging to the expiry of the laytime including periods excepted from the laytime.
This clause is more favourable to the cargoowner as the despatch money will be payable for
all time excepted from laytime such as Sundays and Holidays but it is rarely used.
h/Lien clause
A lien clause gives the ship owner the right to exercise the lien over goods when the
charterer breaches his/her commitment to pay freight, demurrage or other expenses as
agreed. An example of that type of clause is as follows: "The carrier... shall have a lien on
the goods for freight, additional freight, disbursements, storage and other, expenses, or other
charges and all sums whatsoever which are or become due to the carrier from the shipper
and/or consignee and/or the owner whether in respect of previous shipments or on general
account... ”.
i/ Both-to-Blame Collision Clause
This is a standard clause and that forms part of almost any standard charter party issued
by BIMCO. This is a clause included in both voyage and time charter parties and also in bills
of lading.
The purpose of such a clause is to restore the position of the ship owner/carrier who was
traditionally not liable to compensate the owner of the cargo on board the ship for errors in
navigation or management of the ship.
k/ General Average and New Jason Clause
This is a standard clause which forms part of many standard charter parties. It is included

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in bills of lading as well. According to this clause, in the event of an accident, danger, damage
or disaster before or after the commencement of the voyage, resulting from any cause
whatsoever, whether due to negligence or not, for which, or for the consequence of which,
the Carrier is not responsible, by statute, contract or otherwise, the goods, Shippers,
Consignees or owners of the goods shall contribute with the Carrier in general average to the
payment of any sacrifices, losses or expenses of a general average nature that may be made
or incurred and shall pay salvage and special charges incurred in respect of the goods.
Cargo’s contribution to General Average shall be paid to the Carrier even when such average
is the result of a fault, neglect or error of the Master, Pilot or Crew. If a salving ship is owned
or operated by the Carrier, salvage shall be paid for as fully as if the said salving ship or
ships belonged to strangers.
General Average shall be adjusted, stated and settled according to York-Antwerp Rules
which are available in different versions such as 1922,1977, 1994, 2004 and 2016. The
settlement of general average is done in London unless another place is agreed in the Charter
party.
l/ Law and Arbitration
A charter party is regulated by national marine laws, so contracting parties can agree
which law is applicable. For standard forms of charter parties the insertion of a law and
arbitration clause is the most common one. All standard contracts of carriage for use in the
maritime industry have referred to arbitration as a common means of dispute resolution.
In clause 19 of GENCON 1994 Law and Arbitration Clause has been incorporated and it
provides for an optional jurisdiction and venue for arbitration by leaving it to the parties to
make their own choice in each individual case and to fill in Box 25:
- English law and arbitration in London
- American law and arbitration in New York
- As agreed and specified in Box 25
- If Box 25 is not filled in, sub-clause 19 (a) (i.e. English law and arbitration in London)
will automatically apply.

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Besides explained clauses charter party may have other clauses concerning charterer’s
liability, responsibility for paying taxes, dues, brokerage fees or exceptions for the ship
owner in case of war, strikes, Ice bound etc. For more information of GENCON clauses,
please refer to appendix number.
1.3. Air Waybill
1.3.1. Definition of air waybill
All international air conventions contain similar provisions on the requirement as to
delivery and description of air document. Warsaw Convention 1929 defines an air
consignment note rather than an air waybill (AWB). Article 5(1) stipulates, “Every carrier
of goods has the right to require the consignor to make out and hand over to him a document
called an “air consignment note”; every consignor has the right to require the carrier to accept
this document”.
IATA defines an air waybill as a document made out by or on behalf of the shipper which
evidences the contract between the shipper and the carriers for carriage of goods over routes
of the carrier(s).
An AWB is usually issued as non-negotiable document in form of pre-printed or electronic
document.
7.3.2. Functions of an air waybill
An AWB issued by an air carrier or its authorized cargo agent serves several purposes. Most
important of these is its evidential function. The Warsaw-system conventions and the
Montreal Convention 1999 provide that the air waybill or cargo receipt is prima facie
evidence of the following:
• Contract of Carriage
Behind every original of the Air Waybill are pre-printed terms and conditions of contract for
carriage regulating the relationship between the carrier and the shipper and the consignee -
the owner of the bill of lading. Those terms and conditions are pre-established by the carrier
and the AWB is signed by the carrier, the shipper and the consignee. When the shipper signs
the AWB or issues the letter of instructions, he simultaneously confirms his agreement to the
conditions of contract. Thus, the AWB is proof that the contract of carriage is signed between

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the carrier and the shipper and the carrier will be liable to deliver cargo to nominated
consignee at agreed place by plane.
• Evidence of Receipt of Goods
When delivering goods to agents of the air carriers the shipper will get a receipt of the goods
(or acceptance of the cargo) by the carrier and the statements as to the weight, dimensions,
packing of the cargo and number of packages.
The receipt is a proof that the shipment was handed over in good order and condition and
also that the shipping instructions, as contained in the Shipper’s Letter of Instructions, are
acceptable. After completion, an original copy of the air waybill signed by the carrier is given
to the shipper as an evidence of the acceptance of goods for air transportation.
• Freight Bill
The air waybill may be used as a bill or invoice together with supporting documents since it
may indicate charges to be paid by the consignee, charges due to the agent or the carrier. An
original copy of the air waybill is used for the carrier’s accounting.
• Certificate of Insurance
The air waybill may also serve as evidence of insurance if the carrier is in a position to insure
the shipment and is requested to do so by the shipper. In this case, insurance amount should
be indicated in AWB at the box “Insurance amount”.
• Customs Declaration
The air waybill is proof of the freight amount billed for the goods carried and may be needed
to be presented for customs clearance. Besides, in cases when the value of goods is declared
for customs and it is stated in box “Declared value for customs”, this value will be considered
the value of goods for customs clearance.
• Guideline for employees of the airline and freight forwarder
An AWB is a documentary evidence of all shipment details and information, therefore it is
used to guide employees of the airline and freight forwarder in handling and delivery of the
shipment.
Different from bills of lading, an air waybill is not a document of title, thus it is a non-

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negotiable document. An AWB cannot be transferred to other people to receive cargo but
nominated consignee.
7.3.3. Classification of air waybills
According to IATA, an AWB can be in the form of an:
- Airline AWB: This type of AWB has pre-printed issuing carrier identification. Issuing
carrier is an airline.
- Neutral AWB: This type of air waybills has the same format and layout like an Airline
AWB. However, the neutral air waybill does not bear any pre-printed individual name, head
office address, logo of the issuing carrier in any form.
- House AWB: A freight forwarder offering a consolidation service will issue its own
air waybill. This is called a Forwarder’s or House AWB serving as a contract of carriage by
air between the shipper and the forwarder, who in this case becomes a contracting air carrier.
IATA introduced standardized Neutral AWB form in 1986 for freight forwarders to use when
acting as a carrier.
- Master MAWB: The forwarder issuing a HAWB should enter into contracts with
actual air carriers for transportation of goods. The contract of carriage between the forwarder
and the air carrier is called a Master Air Way Bill (MAWB). Thus, MAWB is an airline
AWB issued to a freight forwarder who acts as an air carrier under HAWB.
7.3.4. Issuing AWB
The international air conventions specify that the consignor makes out the air waybill.
In practice, it happens that the AWB is made out and completed by the carrier, as an agent
of the consignor and on the consignor’s instructions. However, it is the responsibility of the
consignor to ensure the correctness of the particulars and statements contained in the air
waybill, and the consignor is ultimately liable for the accuracy of any particulars provided
to the carrier.
The international air conventions provide that the AWB is issued in a set of 3 originals and
6-11 copies. The three originals of different colours have pre-printed terms and conditions.
The copies have only one page with blank reverse side; Except for copy 4 of yellow colour,

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other copies are white.
AWBs are distributed as follows:
- Original 1 is of green colour and marked “for the carrier”. This original shall be signed
by the consignor as an acknowledgement that the contents of the AWB are correct.
- Original 2 is of pink colour with the mark “for the consignee”. This original is signed
by the consignor and by the carrier and delivered to nominated consignee with cargo. The
consignee may use it to complain to the carrier in case of damage to or loss of cargo.
- Original 3 is of blue colour with the mark “for the consignor”. This original is signed
by the carrier and shall be handed to the consignor after the goods have been accepted by the
carrier for carriage.
- Copy 4 (yellow colour) is delivery receipt. It is signed by the consignee and serves as
an evidence that the carrier had handled cargo to the nominated consignee.
- Copy 5 - for airport of destination
- Copy 6 - for the third carrier
- Copy 7 - for the second carrier
- Copy 8 - for the first carrier
- Copy 9 - for agent of the carrier
- Copies 10 and 11 are extra copies for the carrier
- Copy 12 - for customs authority.
AWB can be completed by agents for the carrier or shippers through a computerized system.
Agents and shippers are now using their own in-house computer systems to issue airlines’
and freight forwarders’ AWB.
7.3.5. Content of AWB
Usually, airline AWBs are distributed to IATA cargo agents by IATA airlines.
According to the resolutions, an AWB includes following information:
- The carrier's name, its head office address, its logo;
- Consignor’s/shipper’s name, address, account number (if any);
- Consignee’s name and address, account number (if any);

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 - Issuing carrier’s agent name and address, its IATA code and account number (if any);
- The airport of departure;
- Requested routing (the first airline, followed by the subsequent carrier(s));
- The airport of destination in IATA three-letter code (SGN for Tan Son Nhat airport);
- Flight number, flight date;
- The three-letter currency code of the country of origin, for example VND, USD...;
- Weight and valuation charges, whether the shipment is freight prepaid (PP) or charges
collect (CC). PP means that the consignor/shipper pays the charges and CC means that the
consignee pays;
- The declared value for carriage, customs (if any);
- The amount of insurance in case the shipper insures cargo through the airline;
- Handling information for livestock, perishables, radioactive materials, etc.;
- Cargo information including number of pieces, gross weight in kilograms (kg) or in
pounds (lb), chargeable weight, the nature and quantity of goods including dimensions and
volume;
- The class rate, for example, minimum rate (M), normal rate (N), quantity (Q),
Commodity classification rate (C);
- Rate charges (obtainable from the TACT manual);
- Total charges;
The pre-printed 11 digit air waybill number is made up of: (1) The first 3 digits are the
Airline Prefix given by IATA; (2) The next 7 digits are the Serial Number of the AWB given
by the airline and; (3)The last digit is the Check digit. The check digit is derived by dividing
the 7 digit Serial Number by 7. The remainder determines the Check Digit.
The Conditions of Contract include the provisions required under the international air
law conventions such as definitions, limitation of the air carrier’s liability, and the liability
of servants and agents of the carrier, written notice of complaint within a specified number
of days, time limitation and related matters. The conditions of contract also include other
terms applicable in cases where it is not regulated in the conventions, for example, time limit
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for notice of cargo delay.
Besides AWB, there are other documents used in air transport such as Shipper’s Letter of
Instruction, Shipper’s declaration for dangerous goods and Shipper’s certification for live
animals (if required).

Revision questions:
1. Present definition, function, and classification of B/L.
2. Distinguish a House B/L and a Master B/L.
3. Use the case of exercise 1 (in chapter 6) and fill out some information on a B.L:
Issuer of B.L, Shipper, Consignee, Notify party; Freight.
Based on the issuer of the B.L, which type does this bill belong to?
4. Present definition, function, and classification of AWB.
5. Use the case of exercise 2c, d (in chapter 6) and fill out some following information on
a AWB which is issued by the airline to the forwarder Global:
Shipper , Consignee, Accounting information, C.W, rate.
6. If the delivery rule in the sale contract is CIF, what should be the suitable freight term
following the agreed freight in the voyage charter party?
7. If the delivery rule in the sale contract is FOB, what should be the suitable freight term
following the agreed freight in the voyage charter party?
8. If the delivery rule in the sale contract is FAS, what should be the suitable freight term
following the agreed freight in the voyage charter party?

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 CHAPTER 8: INTRODUCTION TO INSURANCE
8.1. An overview of risks and risk management
 Definition of risk:
Risk is a probability or threat of damage, injury, liability, loss, or any other negative
occurrence that is caused by external or internal attacks (The Business Insurance Dictionary).
Risks are characterized by uncertainty and ability to cause negative consequences. When a
risk materializes, negative consequences incur in the form of damage. A risk is measured by
taking into consideration of two elements: The probability of loss, and the attendant cost of
damage.
 Risk management:
Available techniques to manage the risks are as follows:
• Risk Avoidance
This technique involves not performing an activity that could carry risk. For example,
charterers do not transport cargo by sea in order to avoid the risk of losing cargo and ship to
pirates. Avoidance may seem a good answer to all risks, but it also means losing out on
potential gains that accepting (retaining) the risk may have allowed. Not entering into a
business to avoid the risk of loss also means that the possibility of earning profits is missed
out.
• Risk reduction
Reduction is a strategy in which particular actions are employed to make sure that a disaster
may does not happen or, if it does happen, that it does not cause as much harm as it could
be, reducing the severity of the loss or the likelihood of the loss. For example, sprinklers are
designed to put out a fire to reduce the risk of loss by fire.
• Retention (accept and budget)
This strategy involves accepting the loss from a risk. Risk retention is a method of self
insurance whereby the organization retains a reserve fund for the purpose of offsetting
unexpected financial loss. Through self-insurance it is possible to protect against low-
severity losses.

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 • Risk sharing
It is a technique in which the burden of loss from a risk and the responsibility to reduce a
risk are shared with another party. Insurance is the most popular example of risk sharing, in
which a person pays an insurance company an amount of money in return for compensation
for losses due to an agreed accident (or event / risk). Insurance is one of the most effective
ways to deal with risk.
How to deal with risks depends on what the risk is and what consequences the risk could
lead to. So once risks have been identified, they must then be assessed as to the probability
of occurrence and to their potential severity of impact (generally a negative impact, such as
damage or loss). Therefore, in the assessment process it is critical to make the best informed
decisions in order to properly prioritize the implementation of the risk management plan.
One of the best ways of risk management is to share risks to other parties such as insurance
company, that is, to insure the risks.
8.2. Nature of Insurance
Insurance basically involves a group of people agreeing to share risks via an insurer.
Insurance is a contract (policy) in which an individual or entity receives financial protection
or reimbursement against losses from an insurance company. The insurance company, in
return for a specified payment (premium), undertakes to pay the insured or his beneficiary a
specified amount of money in the event that the insured suffers loss through the occurrence
of an event covered by the insurance contract (policy). Insurance can protect the insured for
things that might happen unexpectedly or accidentally. The insured buys protection against
the chance of losses that can burden him/her financially.
For insurance to work, the company pools clients' risks to make payments more affordable
for the insured. It is basically a mechanism of redistributing risks, losses of an individual or
few people among a large number of people: Many people pay to cover the losses of a few.
Premiums of insured go into a large pool and the claims of the few are paid from that pool.
Because there are more people contributing to the pool than making claims, there is always
enough to pay the claims.
8.3. Common insurance terms
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 - Underwriter/Insurer/Assurer/Insurance company: A person who underwrites/insures
risks. He is a party of an insurance contract, who accepts the proposal of the person
requesting insurance protection. Once the contract is accepted, the proposer becomes
insured. The insurer may be termed the underwriter or the assurer. The insurer/assurer holds
himself liable to compensate the assured in the event of loss to the insured property
proximately caused by a peril insured against.
- Underwriting agent: An agent of an insurance company who underwrites business on
behalf of his company
- The insured / the assured: A person whose interests are protected by an insurance
contract with the insurer. He is a contracting party of an insurance contract.
- Subject matter insured: Goods, properties or any subjects which are undertaken
under a certain insurance policy.
- Insurance contract: A contract signed between an insurance company (insurer)
and the insured, according to which the insurer accepts the liability for loss of or damage
to the subject matter insured caused by insured risks for the certain amount of money
paid by the insured (premium).
- Insurable value (V):
+ The insurable value equals the value of the goods specified on the invoice, including the
transit costs and the insurance premium to be paid by the Insured. V = C+F+I
+ If the insurance is in force in favor of the buyer, the insurable value is the above mentioned
value plus 10 per cent as anticipated profit. V = 110% (C+F+I)
+ If the goods insured are not accompanied by an invoice, the insurable value equals the
market value of the goods in the place where and at the time that the insurance attaches,
including the transit costs and the insurance premium to be paid by the Insured.
- Insurable amount (A): It is an amount to be declared as the sum insured (which
require the insurer to provide an insurance coverage). Insurable amount is either a full
or partial amount of insurable value. The sum insured is based on the policyholder’s own
declaration and the insurer is not liable for any discrepancy between the sum insured and

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the real values. Amount of insurance in any event should not be higher than
insured/insurable value. Even though, there are the cases when A and V are different:
• When A = V, it is a full valued insurance.
• When A < V, it is an undervalued insurance. In this case A will be the maximum
limit of compensation for the total loss of insured subject matter.
• When A > V, it is overvalued insurance. In this case V will be the maximum limit
of compensation for the total loss of insured subject matter. When buying insurance,
cargo owner should avoid this case.
- Insurance rate (R): It is seen as the price of insurance and it is subject to
negotiation. It’s quoted under a percentage of the insurance amount. Insurance rate
consists of a basic rate and additional rates such as rate for old ship, perishable goods,
transshipment rate, war, strike rate...
- Premium (I): It is a small amount of money paid by the insured to the insurer
for transferring insured risks. Premium is calculated by multiplying the insured
amount (A) by the insurance rate (R). We have the formular: I = R*A
- Deductible: It is an amount or percentage specified in the policy which the insured
can make a claim if the loss exceeds that amount. When the deductible is exceeded only
the amount which is in excess of the deductible is recoverable under the policy. The
deductible is normally expressed in the policy as a sum of money. For example, if the
deductible is USD 1,000 USD and the loss is USD 900, the insurer does not pay anything.
If the loss is USD 2,500 USD, the insurer pays the differences between the actual loss and
deductible or 1,500 to the insured.
- Franchise: It is an amount or percentage specified in the policy which must
be exceeded before a claim is payable (like deductible). The difference between
deductible and franchise is that, when the franchise is exceeded the loss is
recoverable under the policy. The franchise is normally expressed in the policy as
a sum of money. For example, if the franchise is USD1,000 and the loss is USD
900, the insurer does not pay the insured anything. However if the loss is USD
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2,500, the insurer pays USD 2,500 to the insured. Thus, the franchise does not really
motivate the insured to minimize or prevent the loss and actually, the insurer prefers
deductible rather than franchise.
- Insurable or covered risks: They are risks stipulated in the insurance contract that
once they caused loss of or damage to goods, the insurer shall be responsible for
compensation for the insured as mentioned in insurance clauses.
- Excluded or uncovered risks: Risks which once they caused loss of or damage to
goods, the insurer shall be entitled to refuse compensation for the insured as mentioned
in insurance clauses.
- Double insurance: One subject matter can be insured by one or more insurers.
Double insurance is a case where two or more policies are effected by or on behalf of the
assured on the same subject matter and the sums insured exceeds the insurable value. The
assured is said to be over-insured by double insurance.
- Coinsurance: It is a situation where two or more policies are effected by or on behalf
of the insured on the same adventure and interest or any part thereof and the sums insured
does not exceed the value of the subject matter.
- Reinsurance: A type of insurance purchased by an insurance company (preceding
company from one or more other insurance companies (the reinsurer). The intent of
reinsurance is for an insurance company to reduce the risks associated with underwritten
policies by spreading risks across alternative institutions. The preceding company and the
reinsurer enter into a reinsurance agreement which details the conditions upon which the
reinsurer would pay a share of the claims incurred by the preceding company. The reinsurer
is paid a reinsurance premium by the preceding company.
8.4. Classification of insurance
Various types of insurance are classified into groups using multiple criteria.
• Based on legal requirements there are statutory and voluntary insurance
- Statutory insurance is compulsory and required under laws, for example, insurance
against liability of motor vehicle owner.

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 - Voluntary insurance, as its name suggests, is not legally compulsory. It’s a kind of
insurance in which the insured is free to make a decision on its purchase, for example, car
insurance...
• Based on the subject matter insured, there are human related insurance, liability
insurance and property insurance.
- Human related insurance is all kinds of insurance that are related to people
themselves, for example, health insurance, personal accidents, life insurance, etc.
- Liability insurance on the other hand refers to insurance against possible liability of
the insured such as professional liability, employer's liability, third party, etc.
- Property insurance is insurance for property such as house, car...
• Based on the characteristics of insurance there are life insurance and non-life
insurance
- Life insurance refers to insurance providing monetary benefit to an insured’s family
or other designated beneficiary upon the death of the insured person. Life insurance may
specifically provide income to an insured person's family or burial, funeral and other final
expenses. The named beneficiary receives the proceeds and is thereby safeguarded from the
financial impact of the death of the insured. Depending on the contract, other events such as
terminal illness or critical illness may also trigger payment.
- Non-life insurance is a general insurance typically comprising any insurance other
than life insurance. Examples of non-life insurance include property insurance, compulsory
and comprehensive vehicle insurance, liabilities insurance, financial insurance and health
insurance.
8.5. Principles of insurance
• Principle of utmost good faith
Principle of utmost good faith is a very basic and first primary principle of insurance.
According to this principle, the insurance contract must be signed by both parties (the insurer
and the insured) in an absolute good faith or belief or trust.
All types of contracts of insurance depend upon the contracts of utmost good faith. Both

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parties (the insurer and the insured) in the contract must disclose all material facts for the
benefit of each other. The person getting insured must willingly disclose and surrender to the
insurer his complete true information regarding the subject matter insured. The insurer's
liability gets void if any facts about the subject matter insured are either omitted, hidden,
falsified or presented in a wrong manner by the insured. So the requirement to show utmost
good faith is very strict on the part of the insured.
The principle of utmost good faith applies to all types of insurance contracts.
• Principle of fortuity or uncertainty
Insurer accepts to insure for a fortuity not for a certainty. The doctrine of fortuity precludes
(1) coverage for intentional actions designed to cause injury and (2) coverage for losses of
which the insured knows at the time the insurance is purchased or when the insured is aware
or should be aware of ongoing progressive losses at the time the insurance is purchased. That
means if the loss is a certainty, the insurer shall be entitled to reject the compensation.
• Principle of insurable interest
The principle of insurable interest states that the person getting insured must have insurable
interest in the object of insurance. A person who has an insurable interest in a property suffers
financial loss resulted from loss of or damage to this property. The insured must possess an
interest in the insured property exposed to peril because if there is no interest there is no loss
and thus no need for insurance. For example, a shipper has insurable interest in transported
cargo because he will suffer financial loss in case of damage to or loss of the cargo, but he
has no insurable interest in the ship transporting cargo.
The presence of insurable interest is a legal requirement. In order to recover under this
insurance the Assured must have an insurable interest in the subject matter insured at the
time of the loss while at the time of effecting insurance, he may have had insurable interest
in the subject matter insured or he will acquire it later. Example is that under a sales contract
with CIF rule (Incoterms 2020), the person who has insurable interest in the insured goods
after being laden on board is the Importer, but he can effect insurance for the shipment from
port of loading to port of discharge when the goods still in the way from seller’s warehouse
to the loading port.
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 • Principle of indemnity
The principle of indemnity is based on the idea that the assured in the case of loss only shall
be compensated against the actual loss. According to the principle of indemnity, an insurance
contract is signed only for getting protection against unpredicted financial losses arising due
to future uncertainties. Insurance contract is not made for making profit. Its sole purpose is
to give compensation in case of any damage or loss.
In an insurance contract, the amount of compensation paid is in proportion to the incurred
losses. The amount of compensation is limited to the amount assured or the actual losses,
whichever is less. The compensation must not be less or more than the actual damage.
Compensation is not paid if the specified loss does not happen due to a particular reason
during a specific time period. Thus, insurance is only for giving protection against losses and
not for making profit.
• Principle of subrogation
Subrogation means the act of substituting somebody to ask for claim.
Principle of subrogation also applies to all contracts of indemnity.
According to the principle of subrogation once the insured has been compensated for the
losses due to damage to his insured property by the insurer, the insurer has the right to be on
behalf of the insured and claim the 3rd party (if any). It prevents the insured being indemnified
from two sources in respect of the same loss.
For example, the cargo was damaged by the fault of the carrier during transit. If the carrier
had compensated the cargo owner full loss of cargo, the cargo owner could not collect the
same from the insurance company. On the other hand, if the cargo owner applied to his
insurance company for indemnity under his policy, he will not be permitted to collect the
damages from the carrier. In the latter case, the insurance company will be entitled to collect
that amount from carrier. If the shipment insured undervalue is damaged, the insurer must
pass the excess proceeds which is claimed from the carrier to the insured.

Revision questions:
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1. Distinguish V and A. Give an example and identify V and A in the example.
2. Present principles of insurance. Give example for each principle.

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 CHAPTER 9: RISK AND LOSS
Different risks imply different losses. In addition, different risks are covered by different
insurance clauses. Therefore, we need to understand different risks and losses for obtaining
appropriate insurance.
9.1. Risks in marine insurance
 Based on the origin of marine risks:
A brief introduction of marine risks is presented as below:
- Act of God: It refers to an inevitable, unpredictable, and unreasonably severe event
caused by natural forces without any human interference, and over which an insured party
has no control, such as an earthquake, flood, hurricane, lightning, snowstorm and volcanic
eruption. An insurance policy often covers for damage caused by acts of God.
- Perils of sea: Perils of the sea refers to the natural accidents peculiar/ unusual to the
sea. It can be maritime accidents and dangers such as collision of the vessel, fire, smoke and
noxious fumes; sinking, stranding, collision, capsizing, loss of propulsion or steering, and
any other hazards resulting from the unique environment of the sea. It is an insurable risk
and is a subject of maritime insurance contracts. A peril of the sea normally occurs in the
event of an accidental incursion of sea water into a vessel, in an unusual manner, resulting
damage to the insured property. However, natural and inevitable actions of the winds and
waves resulting in wear and tear are not considered as perils of the sea. Some examples of
main perils of sea are grounding/stranding, sinking/overturning, fire, explosion and collision.
- Political Risk: They are risks arising from a certain governmental or political act such
as confiscation/ expropriation, nationalization, civil war and insurrection.
- War Risk: It usually refers to acts of war, warlike operations or similar hostile acts.
- Man-made risks: They are risks caused by human’s actions, such as improper package
and poor packing.
- Extraneous risks: They are risks caused by theft, rain, leakage, breakage, dampness,
heating, hooking, rusting... Extraneous risks are covered by the widest insurance clauses
only.

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 - Inherent vice/ Hidden/ latent risks/: Such risks are resulted from the nature of goods
or property which itself is the cause of (or contributes to) its deterioration, damage or
wastage. Such characteristics or defects make the item an unacceptable risk to a carrier or
insurer. If the characteristic or defect is not visible, and if the carrier or the insurer has not
been warned of it, neither of them may be liable for any claims arising solely out of the
inherent vice.
 Based on insurance clauses:
- General risks: risks may be covered in basic insurance clauses such as C, B, A
- Special risks: Not be included in basic insurance clauses but the insured can attach
additional insurance.
- Excluded risks: risks which insurance companies never accept to cover.
9.2. Loss in marine insurance
Loss in marine insurance can be classified based on different criteria.
 Based on the coverage extent, losses are classified as covered or excluded:
- Covered losses: They are losses or damage to the subject matter caused by covered
risks. An insurer is liable to compensate the insured in form of financial compensation for
this kind of losses or damage.
- Excluded losses: They are losses caused by excluded risks or uncovered risks. The
insurer will not pay compensation to the insured for these losses or damage. An example of
excluded loses is the loss attributable to the wilful misconduct of the insured.
- Losses incurred are not limited to the loss of or the damage to the goods. They also
include expenses spent on rescuing the goods in danger.
 Based on the extent of loss: Losses of and the damages to the goods can be total or
partial.
Total loss includes actual total loss and constructive total loss.
- Actual total loss: A loss that occurs when the insured property is totally destroyed or
damaged in such a way that it can neither be recovered nor repaired for further use, or the
insured is irretrievably deprived of it. Usually, this indicates the maximum settlement

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possible according to the terms of the policy.
- Constructive total loss: A constructive total loss happens when the subject-matter
insured is reasonably abandoned. At the time of loss, it is partial loss but its actual total loss
appearing to be unavoidable or because it could not be preserved from actual total loss
without an expenditure that would exceed its value when the expenditure had been incurred.
In particular, there is a constructive total loss if:
+ Where the assured is deprived of the possession of the insured matter by a peril insured
against and it is unlikely that he can recover the subject matter, as the case may be or the cost
of recovering would exceed their value when recovered.
+ In the case of damage to goods, where the cost of repairing the damage and forwarding
the goods to their destination would exceed their value on arrival.
Constructive total loss can be treated as actual total loss or partial loss. In case the
insured wants to be compensated as total loss he should abandon the subject-matter insured
to the insurer by giving a notice of abandonment. If he fails to do so, the loss can only be
covered as a partial loss.
+ Notice of abandonment may be given in writing and may be given in any terms which
indicates the intention of the assured to abandon his insured interest in the subject-matter
insured unconditionally to the insurer.
+ Where notice of abandonment is properly given, the rights of the assured are not
prejudiced by the fact that the insurer refuses the abandonment. The acceptance of the
abandonment may be either express or implied from the conduct of the insurer. The mere
silence of the insurer after notice is not acceptance.
+ Where notice of abandonment is accepted, the abandonment is irrevocable. The
acceptance of the notice conclusively admits liability for the loss and the sufficiency of the
notice.
+ Notice of abandonment is unnecessary where, at the time when the assured receives
information of the loss, there would be no possibility of benefit to the insurer if notice were
given to him.
• Partial loss: It happens when the loss or damage to the goods is only partial.

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 - Where part of the goods insured is totally lost.
- Where the whole of the goods insured delivered has been partly damaged at its
destination.
- Where any part of the goods insured has been damaged at its destination.
 Based on the characteristics of loss:
Marine loss can also be either particular average or general average:
- Particular average is loss borne by a particular party. Particular average resulted from
accident or carelessness of the crew member or other persons. For example, damage of goods
is done by sea water, stranding or during loading/discharge. If some bales of cotton are
damaged by fire, it is particular average.
- General average: It is a loss directly caused by a general average act. It includes a
extraordinary expenditure as well as a sacrifice.
General average act is voluntary and reasonable act by the master in time of peril in the sea
for the purpose of preserving the property in the common adventure.
The general average is shared proportionately in accordance with the secured value. Where
there is a general average, the party on whom it falls is entitled, subject to the conditions
imposed by maritime law, to a proportionate contribution from the other parties’ interests
and such contribution is called a general average contribution.
Subject to any express provision in the policy, where the assured has incurred a general
average expenditure, he may recover from the insurer in respect of the proportion which falls
upon him; and in the case of a general average sacrifice, he may recover from the insurer in
respect of the whole loss in case parties liable to contribute reject contributing.
Subject to any express provision in the policy, where the assured has paid, or is liable to pay
a general average contribution, he may recover therefore from the insurer.
An example of general average: A ship carrying valuable cargoes consigned to a number of
receivers strands on the reef. By order of the master a part of cargoes is jettisoned and as a
result the ship refloats and, after repairs at a port of refuge, is able to complete her voyage
with the rest of her cargoes. Through general average act of the master, the cargoowner

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jettisoned has his loss shared by all the other interest involved.
9.3. Adjustment of General Average
The adjustment will then be produced and the contributions of the various parties calculated.
The general aim of the calculation exercise is to determine what the fair pro-rata contribution
is from each party. Depending on the number of different interests and the complexity of the
matter, it can take a year or more for the adjustment to be issued and if there is salvage
involved then it cannot be issued before the salvage claim is resolved. General average is
adjusted according to the York - Antwerp Rules (YAR). The first edition of YAR was
introduced in 1890 and later was amended in 1974,1990,1994, 2004 and 2016.
The YAR includes:
- Rule of Interpretation stipulating that in the adjustment of general average the rules
of YAR shall apply to the exclusion of any Law and Practice inconsistent therewith;
- Rule Paramount determining that there are no allowance for sacrifice or expenditure
unless reasonably made or incurred.
- Lettered rules from A to G setting out principles to what constitutes general average.
- Numbered rules from I to XXIII setting out specific instances of sacrifices and
expenditures and set out detailed guidelines concerning allowances.
Except as provided by the Rule Paramount and the numbered rules, general average shall be
adjusted according to the lettered rules.
In case of general average, the carrier will be responsible for organising general average
adjustment.
In general the procedure of general average adjustment comprises of the following steps:
Step 1 - Calculating General Average (GA)
General average includes the following values as below:
- The value of cargoes and parts of ship jettisoned as sacrifices
- Damage caused to the goods, ship upon securing the common adventure such as
jettisoning goods and extinguishing fire, cutting away wreck, voluntary stranding, salvage
remuneration …

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 - Expenses such as expenses lightening a ship when ashore, and consequent damage,
expenses at port of refuge, wages and maintenance of crew and other expenses bearing up
for and in a port of refuge, temporary repair of ship…
- Ship’s materials and stores burnt for fuel
Step2 - Determining interest of each party in the ship to make up contributory values, then
calculate the total contributory value ( CV)
These values shall be:
- Actual net value of ship at the time of completion of discharge of cargo.
- Value of cargo at the time of discharge based on commercial invoice rendered to the
receiver. The value of the cargo shall include the cost of insurance and freight. Value of
cargo excludes any loss or damage suffered by the cargo prior to of general average act.
- The freight collected at the destination.
- The amount made as general average for property sacrificed, if not already included;
Generally, CV includes all values of carried cargoes and property, ship’s value as well as
unpaid freight at the time right before general average act. Or CV consits of all values in the
ship at the beginning of the journey minus particular average happening before G/A act.
Step 3 - Determining General Average Proportion (P) by dividing General Average (GA) by
Contributory Value ( CV)
P = GA / CV
Step 4 - Calculating total payment to each interests, by multiplying P by the contributory
value of each interest (C)
C = P x CV of each interest
Step 5 - Accounting financial result
In this step, the average adjuster will calculate whether or not a certain interest will be
responsible for paying and how much is the payment because interests that were sacrificed
for the purpose of general average can be refunded a certain amount after deducting their
amount of contribution.

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Revision questions:
1. Distinguish Risks and Loss. Give an example.
2. Distinguish total loss and constructive total loss.
3. Distinguish PA and GA
4. A vessel worth 2,000,000 USD carrying an export shipment of 500,000 USD. In voyage,
the vessel was stranded and a part of goods valued 35,000 USD was damaged. To go out of
the stranding place, the master ordered to jettison the goods of 65,000 USD into the sea.
Pls adjust the G/A to involved parties.
5. In marine adventure, a vessel of 1,200,000 USD carrying goods A, B, C valued at
300,000; 600,000; 50,000 USD respectively. The vessel was exposed to a typhoon. To
avoid being blown unstably in the sea, the master intentionally steered the vessel to
stranding place, and later he had to jettison some goods into the sea to move out of this
place. The situations were as below:
- Goods A were jettisoned: 200,000 USD
- Goods B were wet due to entry of rain water when the vessel was exposed to typhoon:
400,000 USD
- Goods C were jettisoned: 50,000 USD
- Expenses in relation to the additional wages of crew, towing the vessel out of the
stranding: 50,000 USD
- Breakdown machine due to being pushed working so hard to move out of the stranding:
100,000 USD
Pls adjust the G/A.
6. The ship was stranded because of bad weather. To preserve the vessel and all cargoes
from this common peril, the master intentionally acted as below:
- Hire the lighter to unload the goods to lighten the ship
- Jettison some goods into the sea to refloat the ship
- Hire the salvage ship and push the machinery and boiler to propell the ship out of the
stranding.
When the ship arrived an adjacent safe port, the master declared G/A.

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Knowing that
a/ Damage of hull at the time of being stranded: 120,000 USD
b/ Damage of the machinery due to being pushed to propel the ship out of stranding: 40,000
USD
c/ Cost of hiring the lighter for unloading, reloading the goods back the ship: 20.000 USD
d/ Cost of hiring the salvage ship: 40,000 USD
e/ Value of goods jettisoned: 12,000 USD
f/ Damage of the goods by unloading, reloading from the lighter to the ship: 8,000 USD
g/ Value of goods washed overboard the ship when the ship was stranded: 50,000 USD
h/ The remaining value of the ship on arrival: 1,560,000 USD
i/ The remaining value of goods on arrival : 780,000 USD

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 CHAPTER 10: INSTITUTE CARGO CLAUSES
AND THE CONTRACT OF INSURANCE
10.1. Cargo insurance clauses
In the 19th century, Lloyd’s and the Institute London of Underwriters (ILU) developed
standardized clauses for the use of marine insurance. Such clauses have been maintained
ever since and are known as institute cargo clauses.
Institute cargo clauses are attached to a type of marine insurance that covers cargo in
transit. These clauses are to specify what items in the cargo are covered should there be
damage or loss to the shipment. Institute cargo clauses can cover everything from the
cargo itself to the container that holds it to the transport equipment used to ship it.
There are three versions of institute cargo clauses: ICC 1963, ICC 1982 and ICC 2009,
all of which have been in popular use since introduction. Vietnam is among many
countries having adopted the content of ICC 1982 or ICC 2009 for their own cargo
insurance clauses.
10.1.1. Institute Cargo Clauses 1963 (ICC 1963)
ICC 1963 was introduced in 1963. These clauses used to be incorporated in GS form -
an insurance policy for goods or ship.
ICC 1963 has three clauses: FPA (Free from particular average clause), WA (With particular
average clause) and AR (All risks).
• Free from particular average clause (FPA)
This clause is applied where the goods are extremely susceptible to damage, or are rendered
almost worthless from exposure to water or heat. FPA covers the following:
- Total loss resulted by:
+ Sea accidents: Stranding, sinking, overturning, fire, collision, missing etc.
+ Loss during discharge at the port of distress/refugee.
- Partial loss caused directly or indirectly by accidents such as burning, collision,
sinking, or stranding of the ship (UK) or caused directly by such accidents (US).
- Total loss of any package lost overboard or dropped whilst loading on to, or unloading

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from, vessel or craft.
- Expenses such as general average contribution, salvage expenses, expenses at the port
of distress, loss preventing or minimization expenses and survey expenses.
• With particular average clause (WA)
This is a clause under which the insured cargo is covered for partial damage from seawater
or loss from breakage, leakage, theft, etc. This cover, however, comes into force only when
the damage or loss exceeds a certain percentage (usually 3 - 5%) of the cargo's value called
deductible or franchise.
• All risks clause (AR)
This clause provides the broadest form of insurance cover. It generally excludes losses due
to bad packaging, delay, inherent vice, loss of market, etc. AR policies do not name the risks
covered but provide a list of exclusions instead; that means all unnamed risks are
automatically covered.
Risks to be excluded in accordance with ICC 1963 are as follows:
1. Improper packing
2. Abandonment of cargo
3. Rejection of goods by customs
4. Failure to pay or collect accounts
5. Inherent vice (infestation or loss due to the nature of product itself)
6. Employee conversion or dishonesty
7. Losses due to delay or loss of market
8. Losses in excess of policy limits
9. Losses at port city more than 15 days after discharge of cargo
10. Losses inland more than 30 days after discharge of cargo
11. Losses in port of discharge more than 60 days after discharge of cargo
12. Barge shipments
13. Goods subject to an on-deck bill of lading
14. Used goods

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 Nowadays ICC 1963 has been replaced by ICC 1982 and ICC 2009. FPA, WA and AR
clauses in ICC 1963 have been replaced by standard Institute Cargo Clause C, B and A
accordingly.
Table 10.1: Comparison of cargo coverage of ICC 1963

Criteria for comparison FPA WA AR

I. Scope of covering
1. Total loss resulted by burning, stranding, collision,
V V V
overturning....
2. Partial loss resulted by burning, stranding, collision,
V V V
fire, overturning...
3. Total loss of any package lost overboard or dropped V V V
whilst loading on to, unloading from, vessel or craft
4. Jettison
5. Expenses: (general average contribution, salvage V V V
expenses; expenses at port of distress, losses
preventing or minimizing expense, survey expenses V V V
6. Partial loss
7. Loss caused by extraneous risks (Hook damage, - V V
mud, grease, non-delivery, pilferage, damp, wet,
leakage, breakage…) - - V
II. Onus of proving Insured Insured Insured
III. Deductible/ Franchise No Yes No
IV. Insurable rate Lowest Average High
Average high

10.1.2. Institute Cargo Clauses ICC 1982 and ICC 2009

The introduction of the ICC 1982 Clauses and later ICC 2009 was a radical step that finally
liberated cargo policies from the old SG Policy. ICC 1982 and ICC 2009 include:

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 - Institute Cargo Clause A: It is considered the broadest insurance coverage with the
highest premium as it provides total coverage.
- Institute Cargo Clause B: This clause provides a more restrictive coverage with
moderate premium.
- Institute Cargo Clause C: It has the most restrictive coverage with the lowest
premium.
Each of the institute cargo clauses are reserved for goods in transit. The items being
shipped are considered goods in transit when they have departed from the original location
and are in transit to the final destination whether it is transported by land or sea. It means
that if the cargo is damaged or lost during transit it will be refunded or replaced to whichever
party held the ownership.
Transit clause: warehouse to warehouse (Students need to refer the insurance conditions for
more details)
Scope of coverage:
There has been some updating of the language used in the clauses ICC-2009. Some main
changes are the terms ‘goods’ and ‘cargo’in ICC-1982 have been replaced by ‘subject
matter insured’ in ICC-2009; the term ‘underwriters’ in ICC 1982 has been replaced by
‘insurers’ in ICC-2009; and ICC-2009 gives a clearer indication for some contents
compared with ICC-1982.

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 Table 10.2: Scope of coverage of ICC 1982 and ICC2009 as below:
1. Loss of or damage to the subject-matter insured:
1.1. reasonably attributable to
1.1. Fire or explosion
1.2. Vessel or craft being stranded, grounded, sunk or capsized
1.3. Overturning or derailment of land conveyance
ICC 1882,2009 -C

1.4. Collision or contact of vessel craft or conveyance with any

external object other than water
1.5. Discharge of cargo at a port of distress,
1.2. caused by
2.1. General average sacrifice
2.2. Jettison
2. General Average: general average and salvage charge.
3. Both to Blame Collision Clause: Liability incurred under any Both to
Blame Collision Clause in the contract of carriage.
ICC 1982,2009 - A

ICC 1982,2009 - B

- Earthquake, volcanic eruption or lightning

- Jettison or washing overboard (Clause C covers only Jettison but not
washing over board)
- Entry of sea, lake or river water into vessel craft, hold conveyance,
container, liftvan or place of storage
- Total loss of any package lost overboard or dropped whilst loading on
to, or unloading from, vessel or craft

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 Extraneous risks (piracy, wet, pilferage, shortage, breaks, theft, rain, leakage,
breakage, dampness, heating, hooking and rusting...)

10.2. Cargo Insurance contract

10.1.1. Definition
An insurance contract is a contract between the insurer and the insured, according to
which the insurer is legally required to pay compensation to the insured for loss of or damage
to the subject matter insured caused by covered risk in exchange for payment, known as the
premium.
Characteristically, a cargo insurance contract is:
- A contract of indemnity. Cargo insurance contract is a contract where the insurer
agrees to protect cargo owner against certain future claims or losses.
- A contract with “lost or not lost” principle. This means the insurer will pay even if
loss insured against has occurred prior to the effecting the insurance provided there is no
fraud. The insurer would of course not be liable if the policy holder knew that the loss had
occurred when ordering the insurance.
10.1.2. Types of cargo insurance
 One-off / Voyage policy
Voyage policy is the insurance which covers only a particular shipment (i.e. for a specific
voyage). It is also known as "one-off'. A voyage policy covers from the time when the goods
start their journey and ends when they arrive at destination irrespective of how long it takes
provided reasonable despatch is followed throughout. Under a “Voyage policy’’ every risk
is discussed separately and a premium agreed upon.
 Floating /Declaration policy/Open Cover policy
This is a type of cargo insurance, where a policy is drawn up to cover a number of
consignments. An “Open” marine cargo policy is designed for traders who have a regular
shipments in transit in order to avoid trouble of taking out separate policy for each individual
shipment. The policy is generally written on a wide basis to cover all goods and merchandise

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usual to the operation of the insured and will cover all transit that come within the scope of
the insurance.
The policy can be either for:
- Valued policy: The scope of the insurance is defined by a specific value that requires
renewal once the insured amount is exhausted.
- A permanently open policy that will be drawn up for an agreed period of time, say 12
months, allowing any number of shipments during this time.
The cover for each individual consignment insured under the open policy is evidenced by
the issuance of a Certificate Insurance or insurance policy that states the particular details of
the shipment, e.g. description of the goods, voyage, and a summary of the insurance
conditions.
The main advantages of an open cover policy are:
- The insured does not need to report each shipment individually to ensure cover is
valid. Instead, he must present the insurance company with all the particulars including the
type of goods involved, destinations, and to declare shipments as required by the policy.
- If on the last day of the open cover a consignment began its voyage then cover would
continue until the arrival of the goods at destination even though arrival will be after the
expiration of the time period stated in the policy;
- There is no need to make any advance payments at the commencement of the policy.
Depending on the agreement, the insurance premiums are debited when declaration is made,
monthly, quarterly or annually.
10.2.3. Steps of buying marine insurance
 Submission of form from cargo owner
The insured makes an offer to the insurance company by submitting a relevant form. The
offer form should include the following information:
- Name of the shipper or consignor (the insured).
- Full description of goods to be insured: The nature of the commodity to be insured is
important for rating and underwriting because different types of commodities are susceptible

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for different types of damage during transit. For instance, sugar, cement, etc. are easily
damaged by sea water; cotton is liable to catch fire; liquid cargoes are susceptible to the risk
of leakage and crockery, glassware to breakage; electronic items are exposed to the risk of
theft, and so on.
- Method and type of packing: The possibility of loss or damage greatly depends on
this factor. Generally, goods are packed in bales or bags, cases or bundles, crates, drums or
barrels, loose packing, paper or cardboard cartons, or in bulk etc.
- Voyage and Mode of Transit: Information will be required on the following points:
+ Name of the place from where transit will commence and the name of the place where it
is to terminate.

+ Mode of conveyance to be used in transporting goods, for example, sea or a combined

mode of rail, truck, air. The name of ship, the number of consignment note and the date
thereof should be furnished. A voyage that involves a trans-shipment (that is, the change of
carrier during the voyage) would expose the goods transported to greater risks. Therefore,
this fact should also be informed while seeking insurance.
+ Risk cover required: The risks against which insurance cover is required should be stated.
Insurance contracts are governed by the principle of utmost good faith which requires both
parties of the insurance contract to deal in good faith. In particular it imparts on the insured
a duty to disclose all material facts which relate to the risk to be covered. Thus, the owner of
goods to be transported must disclose all the relevant information to the insurance company
upon submission of the form for insurance. The marine policy shall be voidable at the option
of the insurer in the event of misrepresentation, miss- description or non-disclosure of any
material information. For example, the nature of goods must be disclosed such as whether
the goods are hazardous in nature or not, as premium rate will be higher for hazardous goods.
 Acceptance by the insurance company
The insurer considers the application for insurance from the Assured and offer the insurance
rate which is normally depends on:
- Nature of commodity

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 - The carrier and the ship
- Type and scope of insurance policy
- History of loss of the insured
- ….
 Issuing insurance document by the insurer
In case, the Assured agrees with the offered rate, the insurance contract will be concluded.
Insurance document, a document used to provide information on a specific insurance
coverage is then issued. The document provides verification of the insurance and usually
contains information on types and limits of coverage, insurance company, contract number,
named insured, and the policy’s effective periods.

• Payment of premium (I) by the assured

Premium is counted by the formula: I = R x A

Where: I : Premium
R : Insurance rate
A : Insurance amount

Insurance amount (A) is all or part of value of the subject matter. A may be equal V, may be
less than V or may be more than V. In case of overvalued insurance (A>V) the premium is
still calculated based on A but the compensation will be calculated based on actual value of
goods.
In some cases, we know FOB price and freight and we want to buy insurance for CIF value
or 110% CIF value, we can calculate CIF price on the basis of the below formular:
𝑪𝑰𝑭 = (𝑪 + 𝑭)/(𝟏 − 𝑹)
10.2.4. Claim for insurance compensation
Marine insurance is a contract of indemnity and the insurance company is liable only to the
extent of actual loss suffered. If there is no loss there is no liability even if there is operation
of insured peril.
10.2.4.1. Claim of damage for import/export consignments

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The claim procedure itself is daunting. Normally, the insured must contact the claim adjuster
listed on the reverse of insurance policy or insurance certificate. The adjuster will survey
loss of or damage to goods and write up an estimate. The insured will have to pay the adjuster
for the services - at least several hundred dollars - and add this to the amount of letter for
claim later. Once the adjuster completes the survey, the insured must file the claim for
damages with the insurer promptly. Then, the insured must send the claim documents to the
insurer for payment.
Claims under marine policies have to be supported by certain documents which vary
according to the type of loss, the mode of carriage…
The documents required for any claim are as follow:
- Intimation to the insurance company: As soon as the loss is discovered, it is the duty
of the policy holder to inform the insurance company to enable it to assess the loss.
- Insurance policy/certificate: The original policy or certificate of insurance is to be
submitted to the insurance company. This document establishes the claimant’s title and also
serves as an evidence of the subject matter being actually insured.
- Bill of lading
- Invoice
- Survey Report: Survey report shows the cause and extent of loss, and is absolutely
necessary for the settlement of claim. The findings of the surveyors relate to the nature and
extent of loss or damage, particulars of the sound values and damaged values, etc.
- Debit Note: The claimant is expected to send a debit note showing the amount claimed
by him in respect of the loss or damage. This is sometimes referred to as a claim bill.
- Copy of sea protest: If the loss of or damage to cargo has been caused by a peril of
the sea, the master of the ship usually makes a protest on arrival at destination before a Notary
Public. Through this protest, he informs that he is not responsible for the loss or damage.
Insurers sometimes require the copy of the protest to verify about the actual cause of the loss.
- Letter of subrogation
10.2.4.2. Documents for general average contribution

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Before any cargo is released by the carrier, each cargo owner is required to sign a General
Average Bond plus a cash deposit usually based on a percentage of the invoice value
estimated to cover future General Average contribution. Customarily the ship owners will
accept a General Average Guarantee signed by a reputable insurance company of the cargo
interest in lieu of a cash deposit.
In order to obtain prompt release of the cargo and to assist insurers in posting their Guarantee
in lieu of a cash deposit from cargo interests, the insured should contact insurance company
as soon as possible after learning of the General Average and provide the following
documents:
- Copy of the completed general average bond and any correspondence received from
the ship owners or their general average adjusters.
- Copy of the commercial invoice
- Copy of the ocean bill of lading
- Copy of the insurance certificate
10.2.5. Calculating compensation
 For total loss: compensation is based on A or V, whichever is less
 For partial loss or constructive total loss abandonment of which is not accepted by
the insurer, amount of compensation depends on whether insurance is under-valued, full
value or over- valued.
+ In case of full or over-valued insurance (A = V or A >V):
Amount of compensation = Damage value - Deductible (if any)
(Damage value = Insurance Value (V) - remained value)
+ In case of under-valued insurance (A < V):
Amount of compensation = [(Damage value / V) x A ]– Deductible (if any)
or
Amount of compensation = [the ratio of damage x A] – Deductible (if any)
Anyway, in all cases we can calculate the amount of compensation by the formular:
Amount of compensation = the ratio of damage x A – Deductible (if any)

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 • Principle of contribution
If the insured has taken out more than one policy on the same subject matter. According to
this principle, the insured can claim the compensation only to the extent of actual loss either
from all insurers or from any one insurer. If one insurer pays full compensation then that
insurer can make proportionate claims from the other insurers.
For example, Mr. John insures his cargo worth $ 150,000 with two insurers A for $ 90,000
(60%) and B for $ 60,000 (40%). John's actual property destroyed is worth $ 60,000. Then
Mr. John can claim the full loss of $ 60,000 either from A or B, or he can claim 60% of loss
($ 36,000) from A and 40% of loss ($ 24,000) from B.
In case the insured claims full amount of compensation from one insurer then he cannot
claim the same compensation from other insurer and make a profit. The insurance company
paid the full compensation then can recover the proportionate contribution from the other
insurance company. It means, if Mr. John has been compensated by company A 100% of
loss ($ 60,000), insurance company A can claim 40% of compensation from insurance
company B.

Revision questions:
1. Distinguish the risk covered in insurance clauses C, B, A
2. Present steps to effect insurance for a consignment.
3. Value of a shipment 2,000,000 USD (understood as CFR price) which is insured for its
total CFR value, R = 0.5%. Pls calculate I
4. Value of a shipment 2,000,000 USD (understood as CFR price) which is insured for its
total 110% CIF value, R = 0.5%. Pls calculate I.
5. A shipment of 10,000 USD is insured with the amount 8,500 USD. Damaged value in
transit caused by the agreed risks is 8,000 USD. Pls calculate the amount of compensation.
6. A shipment of 10,000 USD is insured for full value, deductible amount indicated in the
insurance is 1,500 USD. Damaged value in transit caused by the agreed risks is 8,000 USD.
Pls calculate the amount of compensation.
7. A contract of insurance has the data as below:

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  Insurable value: 10,000 USD
 Insurable amount: 8,000 USD
 Deductible: 5 % of value of the loss, damage (but not less than 500 USD)
 Damaged value: 3,500 USD
Pls calculate the amount of compensation?
8. Company X importing 400,000 bags of wheat powder with value 3,200,000 USD
(understood as CIF) had concluded a contract of insurance with ICC-2009- clause A for
110% value of the above shipment. On arrival, the conditions of the goods are as below:
7,000 bags were wet (in which 5,000 bags were soaked and totally damaged; 2,000 bags
were partially damaged and reduced by 30% value)
3,000 bags were torn which led to a reduction in value of 30% of these bags (there is a
remark in the Bill of Lading that “bags are rotten, some are torn”)
a/ What is the amount which the insured can claim from the insurer?
b/ Which documents the insured must present to the insurer for compensation?

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Bibliography
Alan E. Branch, 2005, Export practice and Management – London, Published by Cengage
Learning.
John G. Wensveen, 2007, Air Transportation, A Management Perspective, Published by
Ashgate Publishing Limited
F.D. Rose (2012) Marine Insurance: Law and practice – Informa London
Ha, N.T.T, 2014, Transportation of goods by sea and marine cargo insurance, Published by
VNU-HCM Publishing house
Ha, N.T.T,2015, Transportation of goods by air, Published by VNU-HCMC press
ISO 6346:1995 – freight container https://www.iso.org/obp/ui/#iso:std:iso:6346:ed-3:v1:en
ISO 668:2013 - classification of freight container
https://www.sis.se/api/document/preview/916460/

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