FH3 - Learner Guide - Module 1

NATIONAL CERTIFICATE
NC: FREIGHT HANDLING NQF LEVEL 3
Learner
FREIGHT HANDLING
Guide
MODULE 1
SAQA ID: 57831
NQF Level 03
UNIT STANDARD
8000; 117668
CREDITS: 24
PLANNING IS
Introduction to Transport
Learning Exchange (Pty) Ltd
EVERYTHING
National Certificate Freight Handling NQF level 3 v2 (Feb 2023)
Unit standards: 119265; 262260; 262298 1
Table of Contents
Notes to the Learner................................................................................................... 9
The learning approach ............................................................................................. 10
Assessment.............................................................................................................. 12
Appeals Process ................................................................................................... 16
Qualification Structure .............................................................................................. 17
Learning Pathway ................................................................................................. 17
Using the Learner Guide .......................................................................................... 19
About this Module:.................................................................................................... 21
PART 1:.................................................................................................................... 22
UTILISE RESOURCES ............................................................................................ 23
What is supervision?............................................................................................. 23
Manage resources ................................................................................................ 23
IDENTIFY AND APPLY GOALS .............................................................................. 27
Goals and objectives ............................................................................................ 27
The difference between a goal and an objective ............................................... 28
Setting objectives .............................................................................................. 29
General rules when writing goals and objectives: ............................................. 31
Action plans .......................................................................................................... 32
CUSTOMER SERVICE ............................................................................................ 34
Customer care ...................................................................................................... 34
What is a customer? ......................................................................................... 35
What customers expect ..................................................................................... 36
What customers want ........................................................................................ 37

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What customers hate ........................................................................................ 38
Key Questions Pertaining To Customer Service ................................................... 40
Who is responsible for customer satisfaction? .................................................. 42
The customer has a wider choice...................................................................... 42
Internal and External Customers .......................................................................... 43
Customers and stakeholders ............................................................................ 44
Identify customer service needs ........................................................................ 46
The Cost of Poor Service ...................................................................................... 46
BUSINESS SOLUTIONS ......................................................................................... 48
Business types ..................................................................................................... 48
What Is A Business?............................................................................................. 51
Costs ................................................................................................................. 52
Cost saving within a business ........................................................................... 53
Income from Sales ............................................................................................ 54
What is profit? ................................................................................................... 54
What are profits used for? ................................................................................. 56
How the business manages the money ............................................................ 57
Cash flow .......................................................................................................... 61
Supply and demand .............................................................................................. 61
Technology ........................................................................................................... 62
Work Ethic ............................................................................................................ 63
General Code Of Ethics And Conduct............................................................... 63
A definition of ethics .......................................................................................... 67
Business ethics ................................................................................................. 68

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Unethical Practices in the workplace................................................................. 70
Good Work Ethics ............................................................................................. 71
Cost Of Poor Ethics........................................................................................... 72
Contributing to an ethical work environment: .................................................... 72
Decision Making ................................................................................................... 74
Define The Problem or goal .............................................................................. 75
Collect facts to meet the requirements of the problem ...................................... 75
Verify the information ........................................................................................ 75
Analyse The Facts or problem .......................................................................... 76
Establish criteria and evaluate possible solutions against the criteria ............... 76
Decision making pitfalls to avoid ....................................................................... 79
Implement the solution ...................................................................................... 80
Monitor implementation ..................................................................................... 81
Review the solution ........................................................................................... 82
PART 2:.................................................................................................................... 83
SUPPLY AND DEMAND .......................................................................................... 84
Opportunity cost.................................................................................................... 87
Opportunity Cost Equation ................................................................................ 88
Resources ............................................................................................................ 89
ABSOLUTE AND COMPARATIVE ADVANTAGE.................................................... 92
International Trade................................................................................................ 92
Risks of international trade ................................................................................ 93
Increased Efficiency of Trading Globally ........................................................... 94
Absolute advantage .............................................................................................. 95

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Principle of Absolute Advantage ....................................................................... 96
Comparative advantage ........................................................................................ 97
Absolute advantage VS comparative advantage .............................................. 98
The Flows of Globalization ................................................................................... 99
Global Trade Flows ......................................................................................... 101
VALUE CHAIN ....................................................................................................... 103
Primary activities ............................................................................................. 103
Support activities ............................................................................................. 104
Inbound logistics ................................................................................................. 105
Objectives of inbound logistics ........................................................................ 106
Outbound logistics .............................................................................................. 107
Foreign Exchange............................................................................................... 108
Calculating the value of foreign currency: ....................................................... 111
INTERNATIONAL TRADE AGREEMENTS ........................................................... 114
Introduction to International Trade ...................................................................... 114
Differences between International Trade and Domestic Trade ....................... 115
International Rules and Standards .................................................................. 119
International Contracts........................................................................................ 122
Risk in international trade ................................................................................... 124
Costs in international trade transactions ......................................................... 127
The Trade Cycle ................................................................................................. 131
The trade cycle - a practical example.............................................................. 136
International Logistics ......................................................................................... 138
Trade Regulations .............................................................................................. 139

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How governments enforce trade regulations ................................................... 140
Tariff barriers to trade...................................................................................... 141
Non-tariff-barriers to trade ............................................................................... 143
International Payments ....................................................................................... 148
Cash in Advance (Prepayment) ...................................................................... 150
Documentary Collection .................................................................................. 150
Open Account ................................................................................................. 150
E-commerce payment methods ...................................................................... 153
How to choose between payment methods .................................................... 153
The advantages and disadvantages of payment methods .............................. 154
Export cycle ........................................................................................................ 155
Setting up the deal .......................................................................................... 155
Shipping the goods ......................................................................................... 155
Getting paid ..................................................................................................... 157
General South African Customs requirements for exports .............................. 157
VAT and exported services ............................................................................. 158
South African Trade Agreements........................................................................ 159
South Africa and the EU (European Union) .................................................... 160
Trade, Development and Cooperation Agreement (TDCA) ............................. 162
The African Growth and opportunity Act (AGOA) ............................................ 170
Import Export Procedures ................................................................................... 175
Imports ............................................................................................................ 175
Exports ............................................................................................................ 176
MODES OF TRANSPORT ..................................................................................... 181

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Transportation System........................................................................................ 181
Road Freight Transport ................................................................................... 181
Air Freight Transport ....................................................................................... 184
Maritime Freight Transport .............................................................................. 184
Pipeline ........................................................................................................... 186
Intermodal transportation .................................................................................... 186
International Transportation ............................................................................ 187
Support Services ................................................................................................ 189
Freight forwarding and clearing ....................................................................... 189
Ship’s agent .................................................................................................... 194
Warehousing ................................................................................................... 196
THE SA MARKET .................................................................................................. 211
Trade and Investment ......................................................................................... 211
Manufacturing ................................................................................................. 211
Agriculture ....................................................................................................... 211
Telecommunications ....................................................................................... 212
GDP ................................................................................................................ 212
SADEC ............................................................................................................ 213
Tax treaty ........................................................................................................ 213
WTO................................................................................................................ 213
Imports and exports ........................................................................................ 213
Trading partners .............................................................................................. 214
Mining and minerals in South Africa ................................................................... 215
Mineral sales and exports ............................................................................... 218

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South Africa's farming sectors ............................................................................ 218
Field crops and horticulture ............................................................................. 219
Livestock farming ............................................................................................ 223
Exports ............................................................................................................ 225
Competitive advantages .................................................................................. 226
Deregulation and market freedom ................................................................... 227
South Africa's Transport Network ....................................................................... 228
Ports and shipping .......................................................................................... 228
Roads.............................................................................................................. 229
Railways .......................................................................................................... 230
Airports and airlines ........................................................................................ 230
Sea freight ....................................................................................................... 231
Air freight ......................................................................................................... 233
Rail freight ....................................................................................................... 235
Road freight .................................................................................................... 236
Containerisation .............................................................................................. 239
Break bulk cargo ............................................................................................. 244
Bulk cargo ....................................................................................................... 247
References ............................................................................................................. 249

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Notes to the Learner
Dear Learner,
Welcome to this learning programme. We trust that this learning programme will be
of great value to you during your studies and in your new learning experience. To
succeed in anything in life requires a lot of hard work.
You will be expected to work through this study guide with a great deal of attention.
The guide provides you with information on how to work through the material, details
of exactly what will be expected of you and what objectives you need to achieve
during your studies in this learning programme.
You must:
Complete your assignments with dedication and submit them in time.
Complete the self-study sections for your own benefit. The self-study sections provide
you with the opportunity to practise what you have learnt.
Act as an adult learner.
The theory you are learning helps you to understand why you are doing things in a
specific way. It also gives you a way to compare what you are doing to the way
others do things. However, the only way to become competent is by doing the
actual work according to the unit standards. This Learning programme provides you
with a step-by-step method that you must apply to all unit standards.
As all parties to this learning intervention have duties and responsibilities to fulfil, so
do you, in your capacity as the learner. On the final page of this section, you will find
a commitment letter which serves to confirm your commitment to this learning
intervention. Please read it and sign it, if you agree thereto. Should you not agree,
please contact your college so that the matter can be resolved.

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The learning approach
Active
You have to participate and complete tasks. Actively participate in the teaching
and learning process.
Constructive
The learning content will be to your benefit. Be constructive and actively convert
your learning by integrating the new knowledge you gain in this learning
programme with previous experience.
Cumulative
The learning content builds on your existing experience. The cumulative character of
learning implies that we need to build new knowledge into your existing knowledge.
Therefore, you have to re-sort and refer to what you already know to ensure that this
learning programme is of value to you.
Goal-directed
Certain goals have to be met to complete the qualification competently. You also
have to be goal-directed. Work according to and achieve the learning programme
objectives as well as your personal learning objectives. Know what the learning
programme’s objectives are!
How to complete this qualification successfully?

These guidelines have been compiled to assist you to handle Freight. This
programme is a cross between a self-study programme and a coaching
programme to provide you with the tools that you would need to demonstrate to an
independent assessor that you have met all the criteria to attain the qualification:
National Certificate: Freight Handling

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The National Certificate: Freight Handling is an Outcomes Based Qualification. This

means that you do not necessarily have to sit in a classroom to learn (who can learn
how to run a business by only sitting and listening to a lecturer? – you have to get
practical experience!). To attain the qualification, you have to show that you know,
and can do, all the things required!
Any learning does however require effort; and the effort that the average person
has to put in to learn the skills in this qualification is reflected in the credits associated
with each of the unit standards (learning objectives).
Experience has shown that the average learner requires about 10 (notional) hours
for each credit attained. The whole National Certificate: Freight Handling
qualification consists of at least 128 credits. This programme is going to be an
exciting experience for you since it looks at the world of Transportation from a
practical viewpoint.
The Student Guidelines and the rest of this book are structured as follows: Each
chapter represents a Unit Standard and therefore each has a title that corresponds
with a specific Unit Standard, a set of objectives (which corresponds with the
Specific Outcomes and Assessment Criteria of that Unit Standard) and a list of the
Resource Material that would be of assistance to you in achieving competency.
These guidelines and information will therefore not only assist you to start your own
business but will be the guiding principles by which you could attain the National
Certificate: Freight Handling qualification.
It makes absolute sense to obtain the qualification since it will also help you should
you ever need to find a job again. People in business are known to have to find
employment during times of hardship but most return to their own enterprises after a
while.

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This programme has been designed to meet the outcomes of the Qualification:
“National Certificate: Freight Handling”. The programme is outcomes based which
means that we take the onus of learning away from the facilitator and put it in your
hands.
Assessment
How will I be prepared for assessment?
During the programme developmental activities will be conducted to assist you in
preparing for final assessment. For your own benefit, make sure that you participate
fully in all the developmental and formative assessment activities! What will I finally
be required to do for assessment?
Final assessment will be conducted on the following submission of evidence, e.g.:

 Completed activities in the Learner manual
 Knowledge Questionnaire
 Product samples
What will be assessed in the above?

All assessments are conducted strictly in accordance with the unit standard
requirements. Assessment is a way of measuring what you know and are able to do.
When you have learnt something, you should be able to apply what you have
learnt.
You may be assessed when you are sure that you are ready to be assessed. If you
do not achieve the standard the first time, you can be coached further and then be
assessed again later. You will be assessed in a number of ways and at regular
intervals.
When do I start preparing for assessment?

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Right from the start – make sure you are familiar with the Assessment Guide/Portfolio
Guide, and start preparing and collecting evidence from the onset of the
programme.
Formative Assessment
In order to gain credits for this programme you will need to show an assessor that
you are competent in each unit standard. The activities in this programme are
designed not only to bring about your competence, but also to prove that you have
mastered competence.
Summative assessment
Not all the specific outcomes will be formatively assessed during the programme or
in the workplace. The objective is to create independent and self-sufficient learners.
This means that you will also be required to do independent research and
assignments outside the training room.
The summative assessment activities are indicated at the end of the learning guide.
If your summative assessment is conducted using observation, role plays or verbal
assessment, place a signed copy of the checklists, once completed by the assessor
/ assessment panel, in your Learner manual.
Being Declared Competent Entails:

Competence is the ability to perform whole work roles, to the standards expected in
employment, in a real working environment.
There are three levels of competence:
 Foundational competence: an understanding of what you do and why.
 Practical competence: the ability to perform a set of tasks in an authentic
context.
 Reflexive competence: the ability to adapt to changed circumstances
appropriately and responsibly, and to explain the reason behind the action.

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To receive a certificate of competence and be awarded credits, you are required

to provide evidence of your competence by compiling a portfolio of evidence,
which will be assessed by a Services SETA accredited assessor.
You Have to Submit a Portfolio of Evidence

A portfolio of evidence is a structured collection of evidence that reflects your
efforts, progress and achievement in a specific learning area, and demonstrates
your competence.
The Assessment of Your Competence

Assessment of competence is a process of making judgments about an individual's
competence through matching evidence collected to the appropriate national
standards. The evidence in your portfolio should closely reflect the outcomes and
assessment criteria of the unit standards of the learning programme for which you
are being assessed.
To determine a candidate’s knowledge and ability to apply the skills before and
during the learning programme, formative assessments are done to determine the
learner’s progress towards full competence. This normally guides the learner towards
a successful summative (final) assessment to which both the assessor and the
candidate only agree when they both feel the candidate is ready.
Should it happen that a candidate is deemed not yet competent upon a

summative assessment, that candidate will be allowed to be re-assessed. The
candidate can, however, only be allowed two reassessments.
When learners have to undergo re-assessment, the following conditions will apply:
Specific feedback will be given so that candidates can concentrate on only those
areas in which they were assessed as not yet competent.
Re-assessment will take place in the same situation or context and under the same
conditions as the original assessment.

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Only the specific outcomes that were not achieved will be re-assessed.
Candidates who are repeatedly unsuccessful will be given guidance on other
possible and more suitable learning avenues.
In order for your assessor to assess your competence, your portfolio should provide
evidence of both your knowledge and skills, and of how you applied your
knowledge and skills in a variety of contexts.
This Candidate’s Assessment Portfolio directs you in the activities that need to be
completed so that your competence can be assessed and so that you can be
awarded the credits attached to the programme.

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Appeals Process
Learning Exchange Group (Pty) Ltd recognizes the right of the learner to appeal
against an assessment decision or any assessment practice that they regard as
unfair. It is our policy to ensure that an Appeals and Disputes procedure is in place
and communicated to all assessment candidates should they wish to appeal on the
basis of:
1. Unfair assessment
2. Invalid assessment
3. Unreliable assessment
4. Unethical practices
5. Inadequate expertise and experience of the assessor
Learner receives Learner completes Submit to Learning

feedback from Assessor appeals form Exchange Head Office via
email
PM request re-assessment from

Assessor
Assessor adjusts assessment outcome to

Assessor confirm NYC result
COMPETENT
Learner is not satisfied New feedback letter to learner
PM refer assessment to Internal

Moderator
Moderator Confirms Moderator finds

NYC result Competent
Send feedback to New feedback letter PM set up meeting with assessor

learner to learner and moderator to address issue

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Qualification Structure
The full qualification consists of the following 6 modules:
Module 1 – Principles of Freight Handling

Module 2 – Composition of Supply Chain
Module 3 – Health & Safety Security
Module 4 – Handle Freight
Module 5 – Fundamental Communication
Module 6 – Fundamental Numeracy
Learning Pathway
Module 2 – Composition of Supply Chain
Module 3 – Health & Safety Security
Module 4 - Handle Freight
Module 5 – Fundamental Communication level 3
Module 6 – Fundamental Numeracy

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There are 2 unit standards in this module:

U/S
Unit Standard name Type Level Cr
number
8000 Apply Business Principles C 3 9
Demonstrate an understanding of the basics of local E 4
117668 15
and international trade
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Duration of module
The total proposed duration of this module is as follows:

Unit Theoretical Learning (30%) Workplace Learning (70%)
Standards
Component Credits Time / Credits Time /
Notional Notional
Hours Hours
Total
Fundamental Allocate Anticipated Allocate Anticipated
Credits
/ Core / credits time credits time
Elective against against total
total credit value
credit
value
Fundamental - - - - -
Core 2,7 27 6,3 63 9
Elective 4,5 45 3,15 31,5 15

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Using the Learner Guide
A specific goal is given for each theme. You will have to attain a number of
objectives to attain the goal of each session. First read the objectives to focus your
thoughts on the information that may be relevant to attain the objectives. Once you
have your thoughts focussed, skim or scan the course work prescribed for each
theme to orientate you with the material you have to study.
During the course a number of problems and/or questions will be discussed. You are
advised to develop a concept map of each theme that not only represents each
theme visually, but also relates the different components.
Learner Support
Please remember that as the programme is outcomes based – this implies the
following:
 You are responsible for your own learning – make sure you manage your study,
research and portfolio time responsibly.
 Learning activities are learner driven – make sure you use the Learner Guide
and Workbook in the manner intended, and are familiar with the Portfolio
Guide requirements.
 Your college is there to reasonably assist you during time of this programme –
make sure that you have their contact details.
Responsibility
The responsibility of learning rest with you, so . . .
 Be proactive and ask questions
 Seek assistance and help from your coach, if required
This workbook belongs to you. It is designed to serve as a guide for the duration of
your training programme and as a resource for after the time. It contains readings,

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activities, and application aids that will assist you in developing the knowledge and
skills stipulated in the specific outcomes and assessment criteria. Follow along in the
guide as the facilitator takes you through the material, and feel free to make notes
and diagrams that will help you to clarify or retain information. Jot down things that
work well or ideas that come from the group. Also, note any points you would like to
explore further. Participate actively in the skill practice activities, as they will give
you an opportunity to gain insights from other people’s experiences and to practice
the skills. Do not forget to share your own experiences so that others can learn from
you too.
Icons
For ease of reference, an icon will indicate different activities. The following icons
indicate different activities in the manual.

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About this Module:
In this module, you will learn how to:
Part 1 – Unit standard 8000

 Utilise machinery, equipment, materials and time.
 Identify and apply goals aligned to the work situation which reflect the
organisational goals.
 Maintain and enhance organisational image and customer service (both
internal and external).
 Identify and anticipate customer's requirements.
 Select and implement the most effective business solution.
Part 2 – Unit standard 117668

 Know the basics of supply and demand in the global market.
 Know the basics of absolute and comparative advantage and the need for
International Trade.
 Know the basic underpinning components of the value chain.
 Know and demonstrate an understanding of the basic philosophy of
international trade agreements.
 Know and demonstrate an understanding of the different modes of transport,
and support services in international trade.
 Know and demonstrate a comprehension of the Southern African market
context.

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PART 1:
BUSINESS PRINCIPLES
1. Utilise Resources
2. Identify And Apply Goals
3. Customer Service
4. Business Solution.

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UTILISE RESOURCES
What is supervision?
Let us first look at some simplified examples and definitions.
When a person says: “I will supervise my child's homework, I will supervise the moving
of the furniture, I will supervise the football or sports training,” what do they really
mean?
Very simply, they mean they will look after.

When supervising, you look after your child's homework, the moving of your
household furniture, the football or sports training, or any other type of work.
To continue with our simplified definition, let's ask the simple and again seemingly
obvious question of Why do you need to look after it?
You need to look after all these jobs, or activities, to see that they are well done.
So, our complete and simple description of what supervision is should read:
To look after a job to see that it is well done
This basic meaning of supervision may be enlarged upon, or made more specific for
the working world as:
Supervision is the function of working with and through people to achieve specific
production objectives.
Manage resources
We are all familiar with the word resource. However, it is still one of those words that
may have different meanings to different people. (1 hope that you can see that 1
am alert to good communications!)

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A resource refers to available assets. That is, simply the things that are available for
us to use. A country's resources are its people, minerals, etc. like gold, oil or
agriculture.
As far as a supervisor is concerned, resources are all the things that help him do a
job of work. To a supervisor, resources are:
 Minutes/time
 Men/people
 Machines
 Materials
 Money
The aim of allocating and using resources is to use them in such a way that
productivity is improved. This is the supervisor's ultimate goal.
It is important to note that each resource is not used on its own. They are the
'ingredients' that are used together. For example, when stocktaking for materials,
you are also using men and time.
Minutes/time
Whenever the topic of resources is
introduced everyone mentions machines,
tool, men and materials. They invariably
either forget, or are not aware of the
value of time, and what an important
resource it is.
This is probably because it is not as tangible as materials, men, machines and

money. It is an intangible, but is probably the most important of all.

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Without any doubt, time is everyone's most valuable resource. We all have the same
amount of time – twenty four hours a day. It is up to the supervisor to be aware of it,
and make the most of it. If he forgets about it, he will end up running in circles and
not achieving anything at the end of the day.
Men/people
Most of the supervisor's time is used up in directing the work activities of his human
resource, his people. People are a very valuable resource.
Remember that computers need people to program and operate them. Automatic
machines need people to set and check them. They all need electronics experts to
service and repair them. Buses and trucks need people to drive them. It is a fact of
life that in essence, nothing has changed. People are just as important, and in some
areas, even more important now than they ever were.
Machines
When we talk about machines as a resource, we do not only mean the big drills,
presses, cutting machines, we also mean all the tools that are used, like spanners,
hammers, saws, screwdrivers, etc.
Materials
Materials are also referred to as consumables, or things
that are used up. This would include things like our raw
materials such as wood (furniture), rolls of yarn (clothing),
sheets or coils of steel (engineering) or sand (building),
etc.
The supervisor usually entrusts his materials to the store for

safekeeping and requisitions them out only when
needed. The store's job is to look after and keep track of
all the materials.

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Money
The last resource is money. As we know, this is very important to all of us, especially
when times are hard.
Generally the supervisor does not have that much to do with money. He is given a
budget and he must stay within that budget for his section. If he goes over budget,
he will have to explain why.
As a supervisor or junior manager, you will have to organise the resources in your
department to that as little time, money etc is wasted. In the transport business, you
will have to organise your resources in such a way that drivers do not sit around with
nothing to do because the truck has gone in for a service or a truck or bus standing
idle because the driver is off sick.
This means that you have to plan ahead for unexpected things that can happen.
Activity 1
Complete Exercise 1 in Formative Assessment Workbook

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IDENTIFY AND APPLY GOALS
Goals and objectives

A supervisor will receive plans from his/her
manager. These plans contain the goals
and objectives for the department/section
and have to be put into action.
As a junior manager, whatever your

position is called, you will be given goals
and objectives to achieve. It is your responsibility to implement these objectives,
even if you were not consulted when they were determined. This is your job, this is
what you are paid for and YOU HAVE TO DO IT!
Right, so you get the goals and objectives from your manager. Now you have to
implement these goals and objectives:
You have to plan how you are going to achieve the goals and objectives given to
you. You do this by setting the goals and objectives for your department and then
developing an action plan from the goals and objectives.
Formulate goals and objectives for your department/section, according to the

strategic and tactical plans received from your manager.
Ensure that goals are formulated in line with the vision and mission of the
organisation.
While you formulate goals and objectives, you also set the standards for key
performance areas where performance can be monitored continually. Key
performance areas are performance areas in businesses that are important and that

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can be checked on all the time. For example, sales figures can be monitored
continually as can the number of buses or trucks that are operational.
Activity 2
In our extract from Alice in Wonderland, Lewis Carroll seems to capture the essence
of goal setting. Alice lacks a clearly defined goal, therefore she could not decide
which road she ought to take. Any organisation or individual who lacks goals will
face the same dilemma. Given the choice of alternatives they won't be able to
decide which road to take.
It is interesting that just about everything a person does in life, both at home and at
work, is based on some goal or objective. Without them, life's activities would have
little value or purpose.
The difference between a goal and an objective

 A Goal is a general outcome statement.
 An Objective spells out clearly and in measurable terms, what the goal or aim
will look like when met.
You first decide on a goal that can be achieved, to enable you to focus more
accurately on the objective. It would be difficult to develop an objective without
some idea [the goal] of what the goal is.

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Therefore, the goal is decided upon first. Then we write our SMART objectives, is such
a way that it will help everyone involved with it to attain it. This is why the goal always
comes before the objective.
Example
The Goal: Improve production in the assembly plant,
The Objective: by 10% before January 15, by upgrading the machinery involved.
The goal is usually only the action or activity. That is, to diet, to stop smoking, to
devote time to the children, to paint the house, or tidy the garage, etc. These goals
are adequate for home and sport activities, but do not contain enough substance
to enable anyone to really become seriously motivated to actually attain them.
Setting objectives
Objectives must always be SMART:

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Specific
Objectives must be specific. Don’t say, “I want to bake more cakes per day,”
rather say: “I want to bake 50 cakes per day”.
Measurable
You must be able to measure the objective if you want to use it as a control system.
How can you check if you are achieving goals and objectives if you don’t know
against what you should check them?
Include as many of the following as possible:
 Quality: To SABS standard 1076; without any rejects; as per maintenance
schedule rules, etc.
 Quantity: reduce rejects by 5%; tidy up all the scrap; a minimum of six bottles
per case, etc.
 Cost/Value: reduce the overheads by 5%; cut the competitors price by at least
Rl, etc.
Attainable
You have to set objectives that can be reached. If you set objectives that cannot
possibly be reached, you are wasting time and you and your staff will become
discouraged. You cannot possibly start baking 1500 cakes per day, if you have
been baking 50 cakes per day.
Relevant:
The objective must be relevant to the specific goal as well as the goals of the
business. Don’t set an objective that has no relevance to the goal: “I want to make
45 meat platters per day” has no relevance to baking cakes. If your objectives are
not relevant to the goal, you will confuse yourself and your staff.
Time

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You have to set a date by when you want to achieve the objective. “ I want to
bake 70 cakes per day by the end of February.” Examples could be: Within the next
two weeks; by January 15; before lunch break/stocktaking/home time, etc.
An objective without a time parameter is like an athlete running a race without
being timed. He may win, but how good is that?
General rules when writing goals and objectives:

Always commit goals and objectives to paper. We tend to try and achieve goals
once we have written them down.
It is obvious that objectives must be clearly understood by all those who will be
involved with them, so always use clear and simple language.
Test the objectives on someone else first. If they express the slightest hint of doubt,
don't argue - fix it!
Communicate both in writing and verbally, if you can.

Clarify and confirm understanding: ensure that the people who have to do the work
to achieve the goals understand what is expected of them. When you have to
clarify understanding, ask the person to repeat in his/her own words what is
expected of them. Then you can listen to what they are saying and check if they
really understand.
Activity 3

31
Action plans
Developing the Action Plan
Once you have written down your goals and objectives you have to develop plans
for the realisation of the objectives. These plans are called action plans.
In the action plan you must specify and explain clearly WHAT has to be done, WHY it
must be done, WHEN it should be done, WHO must do it and HOW it should be done.
An action plan is like a map that you will use to find out if things are being done the
way you want it done.
Writing Objectives
Here’s a handy tool to use when writing objectives. Use this format and your
objectives should always be SMART. remember to align all your goals and
objectives with the strategic and tactical plans as made by top and middle
management, as well as the vision statement of your organisation and department.
Objective Target Date Responsibility Action Steps Resources

What must be By when it Who should do it How should What
done should be they do it resources
done will they
need to do
it
An example can be found in handout 1
Implement an Action Plan

The previous steps in the planning process concerned the thought process. These
ideas and goals, as well as the manner in which they are to be achieved must now
be brought into operation and must be evaluated continuously.

32
Plans do not mysteriously activate themselves. You must put the plans into effect.
One of the problems about planning is that too often the planners are not the doers.
As a result, detailed plans running to hundreds of pages may do no more than
gather dust.
Planning, no matter how carefully and painstakingly done, is useless and a waste of
time without commitment and action.
This means that you have to start doing the things that must be done according to
the action plan, or see that the people who must do it, are doing it. This is the
activating process. You have to communicate your goals and objectives to the
people involved, you have to delegate roles and responsibilities and you have to
coordinate the efforts of your staff and other sections or departments.
You also have to organise your resources:

Man: Human Resource
Material:
Machinery:
Money:
Time:
Activity 4

33
CUSTOMER SERVICE
Customer care
Customer care actually involves two distinct terms, namely the customer and care.
Let us briefly explore these terms within the context of our programme.
Customers are often defined as those people who buy our products and services.
Customers are therefore those people without whom a business cannot survive. They
are directly responsible for our income, which is essential in rendering the service.
The Oxford Dictionary defines care as “Feel concern or interest for or about. Feel
regard, deference (compliance), affection, for, be concerned. Be willing or wishful
to.
In simple terms customer care therefore refers to those positive and critical attitudes,
actions and behaviour towards the people without whom we cannot stay in
business.

34
Let us focus briefly on the caring side of customer care. If you care about your
children, you show interest in their whereabouts and you are concerned about their
well-being. You show affection for them.
We should apply customer care principles in the same manner. Although customers
will never be the same as your children, they are significant in your and your
children’s future. Treat them with dignity and respect and show them that you and
the company at large care about them.
The way we look as customers or define and view them may give us an indication of
our commitment to customer care. The following views may give us an indication of
our own mind-set pertaining to those people who pay our salaries:
What is a customer?
The customer is the most important person in the business. Whatever we do in the
framework of our business should be directed with the customer in mind.
Without customers there is no business. With this simple but true reality, we should
walk the extra mile to serve our customers.
The customer is a friend and not an enemy. The customer can never be an enemy
and is always a friend that should be treated as a friend at all times
The customer pays your salary. This reality should never be overlooked, especially in
a fiercely competitive market.
The customer should be served and supported by ALL members of an organisation

and not just by the marketing or technical staff. Every single activity in an
organisation should be planned and structured with the customer in mind.
What a customer is not

The customer is not a number. Some organisations have a central complaints division
and allocate you with a customer number. A customer does not want to be a
number but an important person.

35
The customer is not an interruption. A customer can never interrupt and has the right
to be listened to and attended to.
The customer does not delay the normal flow of work. Although customers demand
the time and attention of staff, they should never be viewed as delaying the work.
The customer is not an ordinary person. A customer is not someone ordinary but a
special person.
The customer does not add cost to the company. Although customer care may be
costly, it should never be viewed as such. Calculate the cost of ignorance and the
result will be clear. Without serving their needs, there may not be a cash generating
business.
What customers expect

In general customers want the following:
 Safe reliable and affordable service
 Information
 Open communication
 The opportunity to air their views
 Prompt reply
 Value for money
 A real satisfying and positive experience
 Walking the extra mile.
What if we don’t satisfy their needs?

 They will make use of other alternatives where their needs are satisfied. Using
alternatives have become common practice today. If a problem or query is
not resolved in a satisfactory manner, the customer will simply seek greener
pastures.
 We will lose market share. Every customer we lose is detrimental to the future
existence of the company.
 Retrenchments will be unavoidable. Most companies experienced the
negative side of business due to retrenchments. Some of the retrenched

36
people are still unemployed today. It is simply not possible to survive without
retrenchments, especially if our share of the market is declining.
 The company may have no other choice than to close the business. If the loss
of market share continues, there is no other choice than closing the business.
What customers want

 Courtesy. Customers really require courteous and polite behaviour from us.
 Cleanliness. Cleanliness is of the utmost importance and gives an indication
of a well-organised and well-managed business.
 Comfort. Our customers also treasure comfort. Most customers work long hours
and deserve travel comfort.
 They want to be pampered and spoiled. Customers really want to feel special.
 Professionalism. Nothing beats
a professional service.
Professionalism actually
means that the total service
reflects a professional image.
 Being attended to
immediately. Nobody wants
to wait. They want to be
attended to now, not later,
not tomorrow, not next week, BUT NOW.
 Enthusiasm. Enthusiasm of all staff members portrays a wanted feeling among
customers. They must see and feel the enthusiasm, and also become
enthusiastic about our company and its outstanding service.
 An explanation. Explaining at the right time may just keep a customer for life.
Failing to explain may imply that we lose a customer for life.
 Empathy. Putting yourself in the other person’s shoes is what empathy actually
means. Don’t react on your own frame of reference, but imagine yourself in his
or her position.

37
 Easy-to-read signs and directions. Life itself is complicated enough. People
require clear and simple directions and signs.
 An assurance of quality. Quality of the service is of the utmost importance and
customers should be assured of the quality during every trip or moment of truth.
Like a good rugby of soccer player, your CV and past experiences are of no
importance now. Sportspeople are selected on current form. Companies are
judged by the same criteria. If we do not render a good service today, there
may be fewer customers as early as tomorrow. They must get reassurance of
our quality service every time they get in contact with the company or its
products and services. REMEMBER “The customer is a rear-view mirror, not a
guide to the future.” (George Colony). We are only as good as we are right
now.
 Knowing whom they’re talking with. Personal attention and knowing you by
name as key official are important. Nothing can replace personal contact.
 A pleasant surprise. People, and especially customers, like pleasant surprises.
This does not imply costly exercises such as free gifts. You can surprise people
by your friendly and helpful attitude.
In understanding the customer it is also essential to know what they dislike or hate.
The following are items that customers normally dislike:
What customers hate

 It’s not my job. Sometimes customers expect every member of the organisation
to assist them with whatever complaint they have. You may not know all the
answers, but the least you should be able to do is to direct customers to those
people who can help them. As far as the direct customer interface is
concerned, every member of the organisation should be in a position to assist
every customer with the routine business issues such as information, prices,
availability, etc.
 I only work here, or I am not paid to do that. If a customer gets this reply, he or
she is automatically upset. This is a severe blockage in the customer relationship

38
and no reply of this nature should ever be made by any responsible staff
member.
 Come back tomorrow. People like to be helped immediately. Telling them to
come back tomorrow will not make friends.
 Please stand in the complaints queue. People hate queues.
 Dealing with more than one person. Customers prefer to deal with one person,
and especially the person that helped them initially.
 Put your queries on paper or fill in a form. Customers hate writing and want their
complaints settled verbally.
 Broken promises. Nothing upsets a customer more than a broken promise. This
is a sure response to ensure that the customer will lose faith and trust in the
company. Never make a promise unless you can live up to it.
 Eating. Eating while dealing with customers is a sign of disrespect and should
be avoided at all times.
 Chewing gum is also a sign of disrespect.
 Private phone calls. A private call while dealing with a customer may give the
impression that the customer is not important. Customers always want to feel
that they are important and special.
 Smoking. Smoking while dealing with customers and the public is also a sign of
disrespect.
 When a job is not done properly. Imagine you service your car at a specific
dealer and half of the instructions have not been carried out. Everything should
be done as expected by the customer.
 Queues. Standing in long queues is frustrating and a waste of time. Although it
is not possible to avoid queuing, every effort should be made to reduce the
frustration of long queues. Even a friendly word when the customer reaches the
counter can have a very positive effect on the customer.
 Lack of punctuality. Punctuality is a key aspect of the service industry.
Punctuality is therefore of critical importance to ensure lasting customer
relationships. People tend to remember the single unfortunate incident and
tend to forget the hundred times the service was good.

39
 Excuses tend to break down the customer relationship. Rather apologise and
accept the blame if the complaint is legitimate, but don’t try to rectify the
situation by providing handy excuses.
 Red tape is also detrimental to the customer relationship. Imagine you tell a
person that his complaint will be forwarded to the customer relations
department and that they will look into the matter if they have time.
 Lies and false promises destroy faith and trust. Never lie to any person. Rather
tell the person the truth, although it may not be the easiest way out. Sometimes
people tend to lie just to get the other person off his back. Lying to a customer
is a sure way to lose him or her forever.
 Arguments and rudeness. Never enter into man argument with a customer.
Rather listen to the complaint and try to solve the problem than to argue. You
may win the argument on technical grounds but you may lose a loyal customer
forever.
 Waiting. Finally people don’t want to wait. As far as possible, attend to
customers immediately.
Key Questions Pertaining To Customer Service

Consider the following:
How good (or bad) is the service that we are rendering? It is of the utmost
importance that you know whether your company is rendering a good service or
not. If you don’t know about problems, you cannot rectify them.
How do we know? There are many ways to find out if customers are satisfied or not.
You can conduct a customer survey, where customers are randomly interviewed
and a report is compiled of the findings. Surveys are normally very costly, as it may
involve contracting market research specialists, e.g. Markinor.
Another way is to collect and record feedback from “frontline personnel”, people in
direct contact with customers, like switchboard operators, receptionists, sales staff,

40
operational staff, e.g. drivers & controllers. These people interact with customers on
a permanent basis and is therefore an invaluable source of information as to how
customers perceive your company’s delivery of service.
Who are our customers? Know who your potential customers are going to be and
identify their needs accurately and with empathy towards these needs.
What are our company’s objectives? These are formulated in the company’s mission
statement, e.g. to provide a professional, cost effective and reliable service.
What makes our customers happy?

Good Customer Service Makes Any Customer Happy!!! Very often customers will
pay more for the same product/service, providing they get Good Customer Service
during service delivery and thereafter.
What makes our customers unhappy?

Bad Customer Service Makes Any Customer…*!@#*‡€!!! (unhappy and/or
disgruntled) To avoid having unhappy customers, it is essential for us to know if, and
when customers are unhappy, and most importantly, for what reason!
How do we compare with our competitors in the market?

To be competitive in the market, we need to know who and what we are up
against. In any race you keep your eye on your competitors all the time. This allows
you to adjust your own performance to stay ahead of your competitors.

41
What makes our company special?
Look at your company critically from a customer’s point of view, comparing it with
competitors. Would you, as a potential customer, wish to make use of the services
that your company offers?
Who is responsible for customer satisfaction?

The South African consumer has been fighting a losing battle against poor customer
satisfaction or -service for too many years.
The reasons for this state of affairs are too many to discuss here, but it suffices to say
that consumers are increasing their demands for good and effective customer
service in exchange for their money. Money which is eventually going to pay the
salary of the person(s) who provide the service, good or bad.
It is therefore necessary for both the public- and private sectors to implement and
maintain customer satisfaction policies and objectives.
Customer care is everyone in the business’ responsibility. The person cleaning the
workshop of a bus depot makes sure that the mechanics work in a clean and safe
environment, enabling them to service the buses effectively and timeously, having
them back in service in good order to deliver a good service to passengers.
Although this cleaner doesn’t have direct contact with the passengers, he still
contributes to the smooth running of the operation.
The customer has a wider choice

The modern day consumer has a much greater variety of services/products to
choose from as well as more and more service providers every day.

42
Competition for the same market has increased vastly. Due to many SMME’s
entering the marketplace, the consumer is no longer limited to a few service
providers to choose from.
More people own their own mode of transport, giving them an alternative to public
transport. This has a definite effect on the number of people utilising public
transport.
To retain the existing customer base, and increase it, we have to implement and
maintain a well-planned customer care programme.
By being creative and open minded a business can influence consumers to make
use of their service instead of exploring other avenues.
Never forget that the consumer has a choice and that your actions can influence
that choice positively or negatively.
Activity 5
Internal and External Customers

The customer is normally viewed as a customer external to the company. The
customer is the most important customer, but is not employed by the company. As a
company we are dedicated to serving the customer.
It is also necessary to have customer relationships inside an organisation. If we follow

customer care principles inside an organisation, we are better geared to serve our
primary and most important customer, namely the customer.

43
Let us look at a few examples of internal customer relationships:
 The Human resource Department serves the entire staff compliment of the
company in terms of remuneration, industrial relations and training services. All
employees are therefore clients or customers of the HR department.
 The technical department provides high quality vehicles to their customers,
namely the operations or manufacturing department.
 Accountants provide financial statements and management information to
their clients, namely management and other users.
 Administrative staff members render a service to their customers, who may be
various other people in the organisation.
 Security officers protect the assets of their customers, namely all people
working for the company, as well as other external stakeholders.
It is clear that the internal customer relationships play a key role in serving the
external customers. The message is therefore clear: If we strengthen the internal
customer relationships, we add value to our customers.
Each and every person in the organisation should actively participate in creating
value. If someone does not contribute to the customer, either directly or indirectly,
we cannot afford to keep such a person on the payroll.
Customers and stakeholders

With the customer defined it is also important to briefly review the key stakeholders
of the organisation or industry.
A stakeholder is defined as any
 individual,
 group,
 company or
 organisation

44
that has an interest or stake in the company. Surely the customer or customer is the
most important stakeholder of any business.
We as officials of the company have an important role to play in ensuring that our
stakeholders as well as customers are served in the most effective way.
It is also important to note that most stakeholders are also very influential from a
customer perspective. For example, community leaders such as school principals
and chiefs are very influential in their statements, remarks and comments to our
customers. If they have any unjustified perception about the company, it may result
in a lost of customers. On the other hand, if they have a very positive opinion of the
company, it may result in an increased customer base.
Other examples are as follows:

 Government officials have a direct impact on policy that may affect our
customers.
 Suppliers have influence in the market, which may to some extent influence
our customer relationships.
 Other providers have considerable influence in the market in terms of
competitive elements.
It is therefore necessary that we know our key stakeholders, their expectations and
more importantly, their influence.
Activity 6

45
Identify customer service needs
The service requirement of customers will differ, depending on their need.
Customers therefore have to be grouped into market segments according to their
needs.
 You will have to identify the key components of customer service: what do
customers require from your organisation.
 Establish the relative importance of those components to customers: how
important is it that their needs are met exactly. School children who are taking
a bus to school want to be on time for school and then when school is out they
would like a ride home as soon as possible. Pensioners, on the other hand,
would prefer a bus service later in the day that can take them into town to do
shopping and then take them back again at a convenient time. This means
that a bus service for school children should run exactly on time in the morning,
while a bus leaving fifteen to thirty minutes after school closes will still meet the
needs of the school children. Pensioners do not like waiting for buses that run
late, but they will not mind travelling at the times indicated on the bus
schedules.
 Identify the segments of customers according to similarity of service
preferences. This is where you classify your customers as school children, adults
travelling to work and back in the morning and afternoon and pensioners who
make use of the bus service at the scheduled times during the day.
What the above means, in essence, is that some customers may be very sensitive to
time, while others may prefer a cheaper service. It might be necessary to do some
market research in order to determine what the exact needs of your customers are.
The Cost of Poor Service

 For every customer who bothers to complain, 26 remain silent
 Satisfied customers tell between 3 and 5 people
 The average “wronged” customer will tell between 11 and 15 other people

46
 91% of unhappy customers will never
buy from you again
 If you make an effort to remedy the
complaint, more than 82% will stay with
you
 It costs about 5 times as much to
attract a new customer as it costs to
keep an existing one
 Almost 5 times as many customers
switch because of poor service than
because of poor product quality or
pride
Activity 7

47
BUSINESS SOLUTIONS
Business types
There are various legal business types:
Sole trader
A sole trader is a small business that is
owned by one person. Examples of sole
traders are: hawker, mechanic,
plumber, electrician, painter, spaza,
hairdresser, welder, bricklayer. The
owner of a sole trading business uses his
own money to set up business.
The sole trader does everything himself. It can happen that the sole trader employs
people to help him, but he still makes all the decisions, and is responsible for the
success of the business.
Most business types have a separate legal personality, but this is not the case when
you operate as a sole trader. He is personally liable for all the debts incurred in the
business. This means that he is personally held responsible if the business cannot pay
it’s debt. The creditors will then sue the owner of the business for the monies
outstanding. This means that the sole trader can lose everything he owns if the
business is not successful.
Partnership
People usually become partners when they trust each other. They will then share
the responsibility for running the business, share the risks and also share the work,
ideas and skills.

48
Examples include professional people like doctors, lawyers, consultants, or service
organisations.
A partnership is an agreement (legal relationship )between at least two people, but

no more than twenty people. There has to be a formal agreement between the
partners. This agreement will say what each partner will do in the business and also
what each partner will bring into the business.
For example, one partner can be responsible for servicing vehicles and ensuring that
vehicles are always roadworthy and ready when they are needed. Another partner
can be responsible for the marketing, where he has to sell the business and bring in
clients. Another partner can be responsible for the administration side of the
business: ensuring that invoices go out on time and payments received on time, etc.
Each partner must also bring something into the business: this can be money, goods
or even a client list of clients that wish to do business with him.
A partnership has an unlimited personal liability because it is not a separate legal

entity. All the owners are personally responsible for business debts. If the partnership
goes bankrupt, the partner with the most assets will lose the most.
A partnership cannot have property registered in its name, it cannot be sued or sue
in the name of the partnership. Any property belongs to the partners but not the
partnership itself.
Close corporation
Doctors, lawyers, consultants or other professional people usually choose this option
of starting a business.
A close corporation has members. The minimum number of members is two and the
maximum number of members is ten. A close corporation has members only, not

49
shareholders or directors. The role of a member is very much like a Managing
Director, nut he will be called a managing member.
All members may participate in the business, and have equal say in the
management of the business. Every member has the right to vote and the number
of votes of each member is proportional to the percentage of his interest in the
corporation. Some members may have a 20% interest and others only 10% and their
votes are counted accordingly.
The members contribute money, skills and expertise. Each member has equal rights
and is involved in the management of the business. Decisions are made by
consultation.
The business is a separate legal entity doing business in its own name apart from the
members. Members are protected from any liability of the CC. This means that, if
someone wants to take legal action, he must take action against the CC – he
cannot take action against the members of the CC.
A CC has limited liability, if one of the members is battling financially it does not
influence the business and vice versa.
Private company
Companies always have (Pty) Ltd at
the end of their names. Examples
include BMW (South Africa) (Pty) Ltd,
Caltex Oil (Pty) Ltd, Denel (Pty) Ltd,
Enterprise Foods (Pty) Ltd, Grindrod (Pty)
Ltd, Imperial Car Rental (Pty) Ltd, Sales
House (Pty) Ltd.
A company is usually associated with large business operations,

50
The membership is limited to fifty natural persons, and it can be started by one
person.
A private company has a legal personality, and can therefore sign contracts and do
business it its own name
Public company
Examples include SASOL Ltd, Teltron Ltd, Bonnita Holdings Ltd, Illovo Sugar Ltd, Engen
Ltd, Malbak Ltd, Stocks & Stocks Ltd, Wooltru Ltd, SA Breweries Ltd.
There are more than seven shareholders and it may have an unlimited amount of
shareholders. The name of a public company ends with Ltd, Limited.
The company has a limited liability and legal personality, and unlimited continuity of
the company.
What Is A Business?
Our purpose in business is to create wealth, to make money. For this to be possible,
we must please our customers and enjoy the confidence of our shareholders and
employees. We must make good profits, so that, after providing for taxes and
dividend (and in present circumstances, financing inflation), there is enough money
available to keep our factories and equipment modern and enable us to grow in
strength and maintain or improve our market position. We endeavour to provide
good, satisfying employment for our people. Creating wealth and building a better
company is our contribution to a better standard of living.
A business is an organisation/undertaking in which the owner/partners sell goods or

render services to customers in order to gain a profit.
Business exist:
 because a gap in the market is identified
 to meet needs and wants of potential customers

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 to make a profit and create wealth
Business contributes tremendously to the wealth creation process in our land.

Wealth is created through the processing of resources into products and services,
which are sold to customers who have a need for the product or service.
For example, a contractor builds houses (a process) using bricks, sand and cement
(resources), and these houses are sold to people who have a need for houses
(market).
Businesses also create job opportunities, which is very important for the economic
state of any country.
Costs
Costs are payments that have to be made while a business is in operation. The
business must know the costs to determine how much money is needed to run a
business, how much money is needed through income from sales, how much the
business should charge for the products/services, the budget, and the estimated
cash flow.
Costs will be influenced by:

 whether the business sells one product or many;
 whether the business offers one service or a number of services;
 whether the business pays staff hourly, weekly and/or monthly;
 whether the business actually produces goods or only sells them; and
 what is regarded as fixed or variable costs in the business.
Fixed Costs (Indirect Costs)

Fixed costs are the proportion of a business expenditure which does not change in
direct proportion to the quantity that is manufactured, bought or sold. No matter
how many products are manufactured, the fixed costs remain the same.

52
Fixed costs for a business are similar to your fixed expenses that you calculated
during the previous section.
Fixed costs are sometimes referred to as overhead costs or indirect costs, and can
include rent, water and lights, advertising, transportation, telephone, printing,
postage, interest on loan repayments, depreciation, repairs and maintenance,
wages and salaries, and the like.
Fixed costs are calculated by dividing the total fixed cost by the number of units
produced. The fixed cost will decrease if the number of units produced increases.
Variable Costs (Direct Costs)

Variable costs make up the proportion of the business expenditure that changes in
direct relation to the number of products manufactured, bought or sold. This is
similar to your variable expenses as calculated in the previous section.
Variable costs are also referred to as manufacturing costs, and can include raw
materials, petrol, cost of goods purchased for release, commission.
Variable cost is determined by dividing the total variable cost by the number of
products, and by how much of each is produced.
Total Costs
The fixed and variable costs may be different for different types of businesses, and
depending on the type of product or service offered.
Total costs are the sum total of variable and fixed costs.
Cost saving within a business

Budgets need to be compiled in order to determine the profitability (whether or not
the company will make a profit) of the business. These budgets have to be adhered
to, to ensure that the company does not run at a loss, or that it does not go
insolvent.

53
A budget is a prior estimation of income and expenditure. All businesses estimate
their income for the year and plan their expenditure around that. Businesses are also
compelled to stick to their budgets, just as good money managers would.
Having a budget also helps us to cut back on spending and save costs. If we ensure
high productivity and quality within the business, we will ensure efficiency.
Let's look at ways of cost saving within a business.
 Increase productivity
 Make everyone aware of quality and improve quality
 Decrease wastage
 Be pro-active in finding ways to improve efficiency
 Decrease unnecessary absenteeism
 Stimulate motivation
Income from Sales

Income from sales is the income received from the number of items that are sold, or
services rendered.
Once sales have been worked out for a period of time, say one week or one month,
the sales can be compared with the budget, and/or estimated sales.
Sales can be increased by:
 Selling more to the customers.
 Finding more customers.
 Changing prices
What is profit?
Profit is the reward companies reap from high
levels of productivity, quality, customer
satisfaction, cost saving, investment in training,
etc. Because companies make profit, reward
systems can be put into place to benefit

54
employers and employees. Profit is also invested by companies, to ensure that
money works for them and to secure future existence in the market place.
Shareholders have to share in the profits of a company as well.
The price at which you sell, the selling price, should always be more than the total
cost price otherwise the business will only be breaking even. In other words, that
means that there is no reward/returns to the business owners for investing their
money in the business.
Profit is determined by the following equation:
Profit = Margin x Volume - Expenses
Margin The difference between the price at which each item is sold
and the cost of the item. The cost includes raw materials, sales
commissions (if salesmen are used) and packaging.
Volume The number of units sold over a given period of time. The more
units sold, the higher the profit.
Expenses Costs like rent, wages, water and electricity, transport,
replacement of machinery, etc. The greater the expenses are,
the lower the profit will be. Reducing expenses is one way of
achieving a bigger profit.
Earlier we concluded that purpose of doing business is to make profit. To be able to

make profit, there will be expenses (expenditure). If the income (generated from
sales or services) is more than the expenses, a profit was generated.
A profit can only be generated if the expenses are managed carefully with the use
of a budget.

55
Gross Profit
Gross profit is the profit after cost of sales (purchases) has been deducted from
income from sales, but before fixed costs have been deducted, and before tax and
dividends have been paid to shareholders.
Net Profit
Net profit is the amount of money made during the period after all expenses have
been deducted.
What are profits used for?

Repay loans
One use of the profits of a business is to pay back any loans, and or to reduce any
overdrafts with the bank. The business may have entered into an agreement to pay
the interest on a monthly basis and the capital amount loaned at the end of a
period.
Reserves
Reserves and undistributed profits represent the amount of money that otherwise
would have been paid out to shareholders in the form of a dividend. This money
assists the business to engage in self-financing. The business can use reserves for
emergencies, expanding the business, buying new machinery, repaying loans,
increasing working capital, and paying bonuses.
Dividends
Shareholders own the business and risk their money when starting a business, or
allocating shares for growth. These shareholders could have done many other
things with their money rather than investing it in the business. For example, they
could have invested the money in the bank and earned interest.
The money that is paid to the shareholder every six to twelve months is called a
dividend. It is important to note that shareholders are the last group to get money

56
from the profits. They first look after the needs of the business and the people of the
business before they take any money for themselves. The proportion of the total net
profit that gets paid out to the shareholders is usually the smallest, if compared to
salaries, reserves and income tax.
How the business manages the money

The business manages its money by using budgets and financial statements. These
are all roadmaps that assist Management in keeping track of money at all times.
 The Past: Financial Accounts
 The Present: Management Accounts, Actual Cash Flow Statements
 The Future: Plans, Budgets
Budgeting
A budget is a written document that
expresses management’s goals and forecasts
in financial terms for a specific future. There
are various budgets in a business, like
 sales,
 production
 administration,
 materials,
 labour,
 capital expenditure,
 financial,
 cash, and
 master budgets.
When you have money available you need to think about how you are going to use
it, otherwise you may spend it and then not have any left, and you may not know

57
what you have done with it. This process of planning how to spend money is called
budgeting.
A budget is a plan of how you intend to spend your money. Everything you intend
to spend the money on is noted or itemised.
It is the way in which you estimate how much it will cost you to run a business over a
certain period of time. This period can be short (such as monthly), or longer
(annually).
In your private life, it will be working out in advance what you will be spending in that
month. It will help you see if you have or will be getting in enough money for the
things you need to buy/pay for.
Budgets are used to plan and control expenses (expenditure). It is crucial that
persons, businesses, governments (local and national) and all business ventures
budget to plan and control expenditure according to projected income.
Costs that are budgeted do not always stay the same. Sometimes you spend more
on some things and less on others. For example: electricity and water can be more
expensive in the winter than in the summer if you use a heater. Groceries can be
more expensive and if you have family staying with you and if you have to provide
for their meals. If you have a car, and it goes to the garage for repairs and/or a
service, your transportation costs will be higher for that month.
It is the same in business. If your organisation manufactures matches they may have
to buy more raw materials in winter because people need to stay warm. So
customers are going to buy more matches to make more fires. But this also means
that the income will be more because people will buy more matches.

58
On the other hand, you may spend more on raw materials in summer if you are in
the business of making ice-cream. However, your income as a business should
increase because people are likely to buy more ice-cream.
When an organisation draws up a budget, the person who does this takes an
average of what things will cost to cater for the ups and downs in cost. In the
months when the business has few expenses the money that is left over must be kept
to cover the costs in months when the expenses are heavy.
Organisations use budgets:

 To provide detailed plans to aid the planning of annual operations.
 To guide managers in an effort to co-ordinate actions which are part of the
common plan.
 To communicate the policies and constraints to which departments and
individuals are expected to conform.
 To provide a measurement tool by which managers are motivated to achieve
 To serve as a control measure against actual results to manage the
exceptions.
 Managers' performances are often measured by their ability to meet
budgeted objectives.
With careful budgeting, production and financial problems can be overcome

before they escalate into major disasters. Production output can be adjusted to the
expected market demand by increasing or decreasing production in certain
seasons or if necessary additional equipment can be purchased timeously to cope
with increased demand.
A major benefit of budgeting is that it requires management to review and

coordinate most aspects of their operations.

59
This, in itself, prevents, or at least helps management anticipate, many crises.
Another benefit of budgeting is that management can compare actual costs with
the costs allotted in the budget.
If substantial variances are noted, management can take the necessary remedial
action.
This is a key aspect in the control of costs and the evaluation of the relative
effectiveness of various departments of a firm.
Following is an example of a budget report that gives a breakdown of monthly

expenses. The management budget report is compiled from various such smaller
reports that give breakdowns of expenses per department, purchases per
department, etc.
March 2007
Payments and Budget Actual Over Under
Expenses
1 Vehicle Licence R54 R54 - -
2 Vehicle Loan R300 R300 - -
3 Petrol R200 R250 R50 -
4 Owner’s Salary R600 R600 - -
5 Wages R346 R596 R250 -
6
7
8
9
10
11
Totals 1 500 1 800 300 -

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Cash flow
A business may be very successful and make good profits, just to find that at some
stage the business does not have enough money available to cover certain
expenses. Money flows in and out of the business, sometimes it flows out faster than
it flows in, and sometimes it flows in faster than it flows out. This is called cash flow.
A cash flow is the way in which money moves through the business. It comes in
through loans, sales and payments to the business.
It goes out through payments to the suppliers and creditors. At home, or in your
private life, cash flow is your salary that you earn, or any other money that you get
in, and all the money that you pay out during the month.
Supply and demand

Supply is the amount of a product or services that a business provides to the
customers at a certain time and a given price.
If you are a hawker selling packets of tomatoes you would expect to sell maybe 50
to 100 packets a day. This will then also be your supply: you will prepare between 50
and 100 packets of tomatoes every day.
A big vegetable shop, on the other hand, will expect to sell perhaps 500 packets of
tomatoes, 300 packets of onions, 450 packets of carrots, etc. per day. They will then
ensure that they have enough products to sell to their customers.
Demand is the amount of a product or service that customers want to buy and
have money for at a given time at a given price.

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The housewife who wants only one packet of tomatoes, will not buy three or four,
even if the hawker tells her that she can get three for the price of two. She only
wants one and that is all she will buy.
The big restaurant will probably be interested in buying more than one packet of
tomatoes if they can get good quality at a cheaper price.
Technology
We live in a world where
technology is constantly changing.
Technology affects most places of
work where the advantages of
installing new technology to
simplify working processes and
improve production and customer
services has to be considered
against the expense of the
technology.
For example, installing "EE" (electronic information and ticket equipment) to sell bus
tickets saves the time of the bus driver and also minimises the risk of theft. On the
other hand, what does such a machine cost and would you have to install it in all
the buses?
Or issuing bus drivers with cell phones could speed up the process of reporting
incidents but what would the cost be?
Installing automatic loading/unloading equipment would speed up the delivery of

goods, but this advantage has to be considered against the cost of installing
something like this in all the trucks.

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The normal process to follow would be:
 Find out what the equipment costs. You would contact more than one supplier
to make sure that you get the best price for the equipment
 Find out what the advantages are in terms of cost saving per vehicle – include
time saving
 Calculate whether the cost saving would justify the expense
 Write a report to make a recommendation
 If the recommendation is approved, include the new equipment in your
budget to make provision for the purchasing of the equipment
 As soon as the budget is approved, purchase the equipment
Work Ethic
General Code Of Ethics And Conduct
As in introduction to this section, we will discuss a general code of ethics and
conduct that should apply to workplaces throughout South Africa.
Although many more things than are highlighted here have changed for the better
in the New South Africa, this is a summary of ethics applicable to the workplace that
should be in place in all businesses.
The general code of ethics is done in line with the Constitution
Equality
The state may not unfairly discriminate directly or indirectly against anyone on one
or more grounds, including race, gender, sex, pregnancy, marital status, ethnic or
social origin, colour, sexual orientation, age, disability, religion, conscience, belief,
culture, language and birth.
We all know that in the old South Africa, discrimination on the basis of race and sex
was practiced in all aspect of the working world. This is no longer allowed and

63
people should be appointed, promoted and remunerated according to their
capabilities.
Human dignity
Everyone has inherent dignity and the right to have their dignity respected and
protected.
Non one may make fun of you because you are a woman or of a different race and
your employers must respect your dignity as a human being. Telling racist or sexist
jokes in the workplace is no longer acceptable. You must also respect the human
dignity of others, including women, children and even people whose political or
religious beliefs differ from yours!
Freedom and security of the person

to be free from all forms of violence from either public or private sources;
not to be treated or punished in a cruel, inhuman or degrading way.
When disciplinary action is taken, you may not be treated in a cruel, inhuman or
degrading way and no violence is allowed when disciplining is applied. Police may
not resort to brutality when they arrest you or when you are in custody. Similarly, you
may also not attach someone else, resist arrest by violent means or treat anyone
else in a cruel, inhuman or degrading way. This includes women and child abuse.
Slavery, servitude and forced labour

No one may be subjected to slavery, servitude or forced labour.
Your employer may no longer expect you to work for food and a place to stay. It
may be part of your salary or wage package but you must also be paid money for
your work.
Privacy
Everyone has the right to privacy, which includes the right not to have their
possessions seized

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This means that no one may take what belongs to you – not in the workplace, not at
home. Your property is your property and no one else may claim it or steal it.
Freedom of religion, belief and opinion

Everyone has the right to freedom of conscience, religion, thought, belief and
opinion.
Everyone has the right to freedom of expression, which includes freedom of the press
and other media;
The right in subsection (1) does not extend to
a. propaganda for war;
b. incitement of imminent violence; or
c. advocacy of hatred that is based on race, ethnicity, gender or religion, and
that constitutes incitement to cause harm.
You are allowed to the religious belief of your choice. In the old South Africa, when
you applied for a job, you were questioned about your religious beliefs. Employers
are no longer allowed to ask you about your religious beliefs.
Labour relations
Everyone has the right to fair labour practices.
You are allowed to join trade unions and seek legal advice regarding labour
matters. Of course, the employer also has this right. You have to be treated fairly
and the correct procedures have to be followed in case of disciplinary action. You
have the right to view the disciplinary code of the organisation and you have the
right to institute grievance procedures. Your employer has the right to expect you to
treat his property with respect, to do your job as laid down, to follow orders relating
to the job and not to steal from him, be it goods or time. the employer has the right
to institute disciplinary action against you if you do not abide by the rules.
Environment
Everyone has the right to an environment that is not harmful to their health or well-
being

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Organisations should not dump potentially hazardous waste of any kind in areas not
designated for such waste products.
Children
Every child has the right not to be required or permitted to perform work or provide
services that are inappropriate for a person of that child's age; or
place at risk the child's well-being, education, physical or mental health or spiritual,
moral or social development
Employers may no longer make use of child labour or force parents to send their
children to work. Similarly, parents may not force their children to go to work if the
above conditions are not met.
Just administrative action

Everyone has the right to administrative action that is lawful, reasonable and
procedurally fair.
People in positions of power may not ask for a bribe or some other form of
remuneration in order to award contracts or do their jobs that they are paid for.
When you are stopped by a traffic officer, he may not accept a gift from you in
order not to give you a ticket. When you are in a position of power, you may not
solicit bribes, gifts or any other form of remuneration with which you can enrich
yourself, in exchange for favours, awarding contracts, etc.
In general, your employer may not expect you to do something that is against your
religion and your own personal code of ethics, such as: lying to clients, industrial
espionage, dump hazardous waste in inappropriate places, etc. Similarly, you may
not damage your employers good name, business relationships, property, etc. due
to your lack of ethics.

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A definition of ethics
Ethics is also called moral philosophy.
How should we live? Shall we aim at happiness or at knowledge, virtue, or the

creation of beautiful objects? If we choose happiness, will it be our own or the
happiness of all?
And what of the more particular questions that face us: is it right to be dishonest in a
good cause? Can we justify living in opulence while elsewhere in the world people
are starving?
Is going to war justified in cases where it is likely that innocent people will be killed?
What are our environmental obligations, if any, to the generations of humans who
will come after us and to the nonhuman animals with whom we share the planet?
Ethics deals with such questions at all levels. Its subject consists of the fundamental
issues of practical decision making, and its major concerns include the nature of
ultimate value and the standards by which human actions can be judged right or
wrong.
Therefore, we can say that ethics concerns itself with what is morally good or bad
and what is right or wrong.
The word ethics is derived from the Greek word ethos. Ethics deal with the morality
of persons as individuals and also that of groups of individuals. Ethics assess not only
what people are seen to be doing, but also examines what they think is right, fitting
and just.
People are often judged by what they do or are seen to be doing, but their actions
do not necessarily reflect their thoughts or feelings, or what they are often saying.

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People often act within the context of traditions and customs, but, and this is
important, ethics always involve 'reflective evaluation', that is, a serious thought
process takes place before action takes place. In other words, individuals like to feel
that what they do is right, just and/or accepted as correct.
Business ethics
A company’s ethics refers to the norms and principles of the company. This
promotes a culture in an organisation where unethical conduct is not tolerated and
unacceptable behaviour eliminated.
Positive business ethics include the following organisational norms and principles
Mission
Statement
Ethics
& Company
Value
Code of
Conduct
Business ethics is about a business doing business in a fair and just way, without lying,
cheating, bribing, or hiding information from customers.
Business ethics examine ethical principles and moral or ethical problems that arise in
a business environment in an attempt to do business in a fair and just way.

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It applies to all aspects of business conduct and takes into account and applies to
the conduct of all the employees of a business and the business as a whole. Many
organisations therefore have an official code of ethics.
A code of ethics typically sets out what behaviour is acceptable, for example are
employees allowed to receive gifts from suppliers or give gifts to customers, as well
as the punishment of employees who violate the code.
Historically, there are several examples of codes of ethics being set for professional
groups. Some such examples include medical doctors, lawyers and other legal
professionals, ministers of religion and accountants.
An old example is the application of the Hippocratic Oath to doctors. This code was
first administered during the time of the Greek physician, Hippocrates, and requires
all doctors to pledge themselves to the preservation of human life and the service of
humanity on the whole.
Apart from the medical profession, several other organisations today prescribe a
code of ethics and professional conduct in order to enhance the prestige of the
organisation and to preserve honestly and good service.
Society is now expecting more from organisations, so an organisation’s ethics will

reflect a code of behaviour which will be in line with what the public expect of the
organisation. Society expects business to show
 social responsibility,
 show that it cares for the environment and is protecting the environment
 show that it cares for consumers
Organisational ethics demand that companies:

 Be more honest and less secretive in their dealings with society. The consumer
must be provided with more and better information regarding the total market

69
offering. By an increased emphasis on communication, the organisation can
provide the consumer with useful and reliable information, thereby ensuring
that the consumer is better informed.
 That they go beyond their legal obligations. Another dimension is the authority
within which the organisation operates. Should it try to evade its responsibilities
by, for example, disregarding prevalent moral and ethical values, it may
provoke a reaction in the form of legal or legislative action.
 That they do not market products which contain an unknown degree of risk,
 And that they refrain from activities which waste scarce resources, or pollute or
irreparably damage the environment.
 These days organisations must accept responsibility for the welfare of society.
In other words, it must accept greater responsibility for possible harmful effects
of its products. This is called corporate social responsibility. (refer to TBL in the
previous section)
Consequently, it can happen that a manager's code of ethics can have a

considerable influence on many aspects of the organisational life of a business -
from making decisions on internal matters to his behaviour outside, with clients
especially, and also with other members of his community.
Unethical Practices in the workplace

Unethical behaviour in the workplace is
common and should be managed on a
continuous basis.
There are more and more opportunities

for unethical people to manipulate
various systems in the workplace. Typical
examples which can be added to the
statistics are hackers who steal
information from the software on computers.

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 The one that is most prevalent in South Africa today is bribery.
 Industrial espionage where information is leaked to competitors in return for
payment
 Invoice fraud - the amounts which are owing to the creditors are fictionalised
or they are inflated. This would fall under accounting ethics.
 Product fraud - poor quality products are released on to the market. When this
happens, the company is acting unethically in its production, marketing and
social responsibility
 Advertising fraud - misleading or invalid claims are made for the products.
 Favouritism - the staff are promoted on the basis of favours, gifts and nepotism.
 Contracts and tenders are fraudulently granted.
 Stealing of computer time for one's own benefit.
 Discrimination in any form
 Conflict of interest – where employees engage in outside employment and
private practice by stealing the company’s customers and doing work for them
privately
 Accepting gifts and benefits from suppliers in return for the allocation of
contracts or tenders
 Misuse of company equipment and assets.
From the above it can be seen that the greatest threat to the organisation comes
from within when the conditions are supposed to be normal. Waste, accidents and
errors take a large bite out of the profits of the organisation.
Good Work Ethics

These elements of the work ethic apply to all those working within an organisation
and this ethic must be witnessed by that organisation’s clients.
 Employees must be honest with and loyal to clients.
 Total quality management would result in sub-standard products not being
released onto the market

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 Be on time for work, as arriving late or leaving early means you are stealing from
your employer
 Do not accept bribes and gifts from suppliers
 Do not use company equipment for your own benefit
 Loyalty. Successful organisations have loyal employees. These employees are
motivated to always carefully consider the interests of the organisation. This
loyalty should not however be a blind loyalty and employees should still be free
to question decisions.
 Honesty. Someone who is honest is truthful, law abiding and incorruptible.
Dishonest people lie, cheat and steal.
 Do not commit accounting fraud in any form
 Avoid favouritism
 Make sure advertising is truthful
 Do not abuse company property and machinery
 Be proud of your work and do your best every day
Cost Of Poor Ethics

 Loss of trust which leads to poorer relationships and less effective team work
 Loss of confidentiality,
 Limited communication,
 Lack of self-esteem, of commitment and less loyalty
 Loss of your/the organisation’s good name
 The organisation can be blacklisted, meaning that no contracts or tenders will
be allocated to it
 Customers can lose faith in the organisation, leading to a loss of customers to
competitors
 Organisations can be fined for certain unethical practices
Contributing to an ethical work environment:

 Make the decision to commit to ethics

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 Recognise that you are a role model by your actions and values
 Assist others by instilling ethical behaviour
 Discuss ethical practices
 Articulate your values
 Talk to people
 Be consistent
Activity 8
Rate the following characteristics in order of importance in running a business, from 1
(most important) to 10 (least important). Give a reason for each rating:
Characteristic Rating Reason
Integrity
Honesty
Loyalty
Charity
Responsibility
Accountability
Self-discipline
Respect
Justice
Civic virtue
a) In a group, discuss the difference between a sole trader and a partnership.

b) What type of business entity is your organisation? in your groups, discuss the
business entity in terms of membership and legal personality.
c) Explain the difference between fixed costs and variable costs
d) How can you save costs in your department?

73
e) Explain gross profit
f) Explain net profit
g) Explain the purpose of a budget in your own words.
h) Explain cash flow in your own words.
i) Explain supply and demand
j) What technology is your organisation currently using?
k) Is there technology that you are aware of that is not being used by your
organisation? Do you think the company could benefit from the technology?
Motivate your answer.
l) How can you ensure that the employees working in your department always
do business in an ethical way?
Decision Making
'The cause of lightning ,'Alice said very decidedly, for she felt quite sure about this, 'is
the thunder - no, no,’ she hastily corrected herself, 'I meant the other way.'
'It's too late to correct it,’ said the Red Queen.’ When you've once said a thing, that
fixes it, and you must take the consequences.'
Through the Looking Glass - Lewis Carroll.
A supervisor can only be as good as his ability to make decisions. When a supervisor
gets into a situation where a decision is required and there is no one else to turn to, it
is up to him and him alone. After all, that's what he's being paid for!
'”Take an educated guess.” and “Toss a coin.” sounds simple enough, but not the
best way of making a decision.
The steps involved in decision making actually seem very obvious. But in the job
situation, you will have to follow them in a real, complex, company setting. Decisions
will become compounded by so many other factors, such as emotions,
misunderstandings, defensiveness, prejudices and many more.

74
To some degree, your success as a supervisor will depend on how well you make
your decisions. This will be a very powerful skill to have as you climb the
management ladder. So, get to grips with it and keep practising it as much as you
can now.
Define The Problem or goal

To try to bypass most of the human failings that come to the fore when making
decisions, you must follow the above steps.
Peter Drucker, one of the most eminent and respected authors in management
science, says,
Effective decisions result from a systematic process, with clearly defined elements,
that are handled in a distinct sequence of steps.
When making decisions you must take rational, logical action. You must not rush.
You must pause, stand back and look at the problem from all angles.
However, this does not mean that you should use more time than necessary.
The size and urgency of the problem will probably dictate the length of time you
would need to reach a decision.
Collect facts to meet the requirements of the problem
The person who is best at defining the nature of a problem, will be the one who will
be the most successful at solving it.
You need to collect facts that meet the requirements of the problem.
A fact can be defined as a piece of verified information.
Verify the information

After you have gathered information, you have to verify the information.

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The key is which facts are relevant and which are incidental.
To examine the facts adequately, be sure to separate what you know to be true
from what you think is true. Always try to gather facts from more than one source.
Check your information for accuracy and truthfulness.
Take some time and thought to examine the facts first
Analyse The Facts or problem

When you have the answers to most or all the above questions, think it trough.
Analyse the facts. Determine what is relevant and what is irrelevant.
Determine possible courses of action

Once you have identified the components of the problem or all the facts, you can
consider possible courses of action. List the possible courses of action in the light of
the factual analysis.
 What are the possible options? List as many as you can.
 What are the likely end results of each of these?
 Which of them seems to be the best from all angles?
Where appropriate, use brainstorming and creative-thinking techniques to identify

courses of action that may not be immediately evident.
Establish criteria and evaluate possible solutions against the criteria

Once you have generated possible solutions by any of the previously mentioned
methods, you have to establish the criteria for the solution.
Consider the possibilities, listing advantages and disadvantages

Duration

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 How quickly do you have to find and implement a solution?
 How long will it take to implement the solution?
Causes
 Will the solution cause other problems to appear?
 How will these problems be addressed?
Effects
 Consider cross-cultural implications, for example dress code, religious holidays,
type of food and drink.
 Evaluate the immediate and future consequences both inside and outside the
organisation.
 Compare the cost of the solution with the benefits of implementing the solution.
 Assess how far the needs of those involved will be met and the extent to which
your decisions will be acceptable.
 Be careful of creating precedents: will this solution create a situation where
other departments will also want to implement the process, even when it does
not really apply to that department?
 Consider also the implications of any internal and external constraints that
might exist: is there anything in the company policy or legislation that might
limit or restrict the implementation of the proposed solution.
 Ensure that all concerned participate in the evaluating and decision-making
process. Note, however, that the degree of participation will depend on the
nature of the problem and the participation procedures and management
style of the organisation.
 Resources: when a solution is evaluated you have to consider its impact on
scarce resources. A maximum payoff solution will not be an optimum solution
if it requires the consumption of excessive staff time and attention, money,
space, raw materials, and IT resources.
 The degree of disruption: an excellent theoretical solution may cause too much
disruption within the organisation. Hence the organisation must appraise the

77
consequences of implementing various solutions. Only when the benefits
exceed the disruption costs should the solution be pursued.
Things that can influence your decision

 Tradition.
 Cultural differences.
 Self-interest.
 Organisational factors, policy and
precedents, legal aspects, practices and
expectations.
 Political views vs. logic.
 Ease of execution.
 Personality factors, attitudes, emotions,
prejudices.
 Time/urgency, organisational need, political
need, personal need.
 Pressure from peer group, need to please others.
 Authority, expert opinion.
 Generalisations, opinions, insufficient evidence or knowledge.
 Facts.
 Creativity and/or an urge to do something differently.
 Experience: successful or unsuccessful.
Select the solution

When you select a solution, you should ensure that:
 You have generated all the possible solutions.
 You have removed the solutions that are obviously not workable.
 You have considered all the consequences.
 The solution meets the established criteria in terms of budget, resources
available to you to implement the solution and also any legislative
requirements.

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Often, there will be only one solution that meets all the criteria. When this is not the
case, you should decide:
 Whether to choose the solution that meets the most important criteria, or
 Whether you have to generate more solutions.
Do not expect the process to always produce a black and white solutions.
Remember that Drucker says:
A decision is a judgement.
It is a choice between alternatives.
It is rarely a choice between right and wrong.
It is at best a choice between almost right and probably wrong- but much more
often a choice between two courses of action neither of which is more nearly right
than the other.
Decision making pitfalls to avoid

 Deciding alone. There are many benefits to consulting with others on a
decision: gaining different perspectives, more resources to draw upon and
more commitment to the decision by those consulted.
 Every decision a major decision? Not every decision requires a lengthy
decision-making process. Don’t get bogged down with minor problems. If they
are minor, make a reasonable decision and move on.
 “The last time I was wrong was when I thought I made a mistake”. No one is
always right. If you have made a bad decision, admit it and get started on
fixing it. Remember – it is impossible to force a bad decision into being a good
one.
 “Boy! I sure wish I hadn’t”. Just the opposite of pitfall number 3. Because no one
can be right all the time, don’t waste your energy regretting bad decisions. Get
on to current issues.

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 Failing to use past precedent. Maybe the same problem has come up before
and been effectively solved. Perhaps, if it has come up enough, there is a
company policy that covers it.
Implement the solution

Stakeholders Are Consulted
A problem has not been solved until the decision has been implemented.
Before you implement a solution, you have to discuss the matter with all the people
involved, called the stakeholders. This could include
The people doing the work. Your manager.

Their supervisor(s). The finance department.
Their manager. The HR Department.
The people who helped you to And anyone else who may be
determine the solution. involved.
No solution will be implemented successfully without the approval and commitment

of all the stakeholders. You need their cooperation if you want to ensure that the
implementation of the solution will work.
You also have to assign duties and responsibilities. Think carefully not only about
how a thing is to be done (by whom, with what resources and then by when) but
also about its impact on the people concerned and the extent to which they will
cooperate.
You will get less cooperation if you impose a solution. The best method is to arrange
things so that everyone arrives jointly at a solution freely agreed to be the one best
suited to the situation (the law of the situation again).

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Make sure that everyone who needs to know about the decision is informed.
Monitor implementation
The implementation of the solution must always be monitored. You have to:
 Check on how effectively the decision is being implemented.
 Obtain the reactions of those affected.
 Take corrective action where necessary.
This implies that you will have to develop a control system whereby you can monitor
the implementation of the solution.
Duration
Before you implement the solution, you have to
decide
 How long you are going to monitor the
implementation: one week, one month,
three months, etc.?
 How often will you monitor the
implementation: hourly, daily, weekly?
 When will you review the monitoring process:
after one week, two weeks, one month?
Just as every problem will have its own unique solutions, the way you monitor the
solutions will also vary. Some solutions will indeed have to be monitored hourly or
daily, while others will require monthly monitoring.
Implication and Effects

The purpose of monitoring the implementation of the solution is to determine
whether the solution you selected is working.
 How will you monitor the implementation?

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 Has the problem been solved?
 How can you prove this?
 Have other problems appeared as a result of the solution?
 Are the stakeholders committed to implementing the solution?
 Is the process working for them or has it led to unhappiness?
Review the solution

If the solution is not solving the problem, you have to repeat the problem-solving
process in order to find a solution that works.
If the solution that you implemented is solving the problem, you have to determine:
 Whether the solution will work in similar instances in the rest of the organisation.
 Whether new systems have to be developed in order to implement the solution
across the entire organisation.
 What practices and procedures have to be committed to paper for the
implementation of the process across the organisation?
 What records are required in order to report on the successful implementation
of the solution?
 What records will be required to standardize the new process?
Most of the documentation, procedures and records required for the

implementation of the new process will already be in place in the organisation. You
will have to find out what they are and then use them in your process.
If the organisation does not have a system for implementing new processes, you will
have to develop such a system.
Activity 9

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PART 2:
LOCAL AND INTERNATIONAL TRADE
1. Supply And Demand
2. Absolute And Comparative Advantage
3. Value Chain
4. International Trade Agreements
5. Modes Of Transport
6. The SA Market

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FETC: ROAD TRANSPORT SUPERVISION NQF LEVEL 4
SUPPLY AND DEMAND

The market
A market is a group of buyers and sellers of a particular good or service: the market is the
place where buyer and seller come together.
The people who demand something, and the people who satisfy those demands are
called the market.
We get different markets which consist of people who want and supply specific things. For
example, sports, food, transport, and so on.
Markets can be of different sizes and depends on the population in the area,
development of the area (urban or rural), income patterns, seasons or cycles, government
restrictions or assistance, and customers.
Supply and demand

The terms supply and demand refer to the behaviour of people as they interact with one
another in markets.
 Buyers determine demand
 Sellers determine supply
Demand
Demand is when many people need or want the same thing
Demand is the number / amount of goods and services that buyers are prepared to buy
at a given price.
Needs and wants create demand. For example, farmers and supermarkets satisfy the
demand for food, clothing shops satisfy the demand for clothing, construction companies
satisfy our demand for housing, disco’s and cinemas satisfy our demand for
entertainment, taxi’s and buses satisfy our demand for public transport, and so on

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 Quantity demanded is the amount of a good that buyers are willing and able to
purchase.
Law of Demand
The law of demand states that, other things equal, the quantity demanded of a good falls
when the price of the good rises.
For example, a consumer will purchase more pizzas if the price of pizza falls. The opposite
is true if the price of pizza increases.
In addition to price, other determinants of how much consumers want to buy include
 income,
 the prices of complements and substitutes,
 tastes,
 expectations,
 and the number of buyers.
Supply
Supply is the number / amount of goods and services which sellers are prepared to sell at
a given price
 Quantity supplied is the amount of a good that sellers are willing and able to sell.
Law of Supply
The law of supply states that, other things equal, the quantity supplied of a good rises
when the price of the good falls.
In addition to price, other determinants of how much producers want to sell include
 input prices,
 technology,

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 expectations,
 and the number of sellers
Seasons
Consumer goods like cold drink or even clothing
can be affected by seasons.
Consumer behaviours
Sometimes fashion trends, styles and designs can
change because consumer behaviour changes.
This can affect demand and may result in price
having to be reduced.
Supply and demand together

Supply and demand trends form the basis of the modern economy. Each specific good or
service will have its own supply and demand patterns based on price, utility and personal
preference. If people demand a good and are willing to pay more for it, producers will
add to the supply. As the supply increases, the price will fall given the same level of
demand. Ideally, markets will reach a point of equilibrium where the supply equals the
demand (no excess supply and no shortages) for a given price point; at this point
,consumer utility and producer profits are maximized.
Equilibrium refers to a situation in which the price has reached the level where quantity
supplied equals quantity demanded.
Equilibrium Price
The price that balances quantity supplied and quantity demanded.
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price.
 At the equilibrium price, the quantity demanded equals the quantity supplied.
 The behaviour of buyers and sellers naturally drives markets toward their equilibrium

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Opportunity cost
Opportunity cost is based on what must be given up (in other words, the next best
alternative) as a result of a decision.
The next best thing that a person can engage in is referred to as the opportunity cost of
doing the best thing and ignoring the next best thing to be done
It implies the choice between desirable, yet mutually exclusive results.
It has been described as expressing "the basic relationship between scarcity and choice.
The notion of opportunity cost plays a crucial part in ensuring that scarce resources are
used efficiently. Scarce resources force us to consider alternatives and this leads to
opportunity costs.
Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of
output forgone, lost time, pleasure or any other benefit that provides utility should also be
considered opportunity costs.
For example:
A person who invests R10,000 in shares on the JSE chooses not to earn interest on the
money. Instead of interest, they hope to make more money (say double the value of their
shares) in return for denying himself the interest he could have earned.
The opportunity cost of the decision to invest in stock is the value of the interest.
OR
If a municipality or province decides to build a hospital on vacant land it owns, the

opportunity cost is the value of the benefits given up of the next best thing which might
have been done with the land and construction funds instead.

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In building the hospital, the municipality or province has forgone the opportunity to build
a sports centre on that land, or a parking lot, or the ability to sell the land to reduce their
debt, since those uses tend to be mutually exclusive.
Also included in the opportunity cost would be what investments or purchases the private
sector would have voluntarily made if it were not taxed to build the hospital
Opportunity cost is useful when you have to evaluate the cost and benefit of the choices
you make.
Opportunity cost is not only assessed in monetary or material terms, but can be assessed in
terms of anything which is of value. For example, a person who desires to watch each of
two television programs being broadcast simultaneously, and does not have the means to
make a recording of one, can only watch one of the desired programs. Therefore, the
opportunity cost of watching soccer could be watching cricket.
In a restaurant situation, the opportunity cost of eating steak could be trying the bobotie
or fish. The opportunity cost for the diner of ordering both meals could be twofold - the
extra R70 to buy the second meal, and his reputation with his friends, as he may be
thought gluttonous or extravagant for ordering two meals.
One might decide to use a short period of vacation time to visit family rather than do
household improvements. The opportunity cost of having happy children could therefore
be a remodelled bathroom.
Opportunity Cost Equation

Opportunity Cost = Cost of Selected Alternative – Cost of Next Best Alternative
Now let's see how we can calculate opportunity cost using this equation.

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Example
Nora currently needs to buy at least one among the three – a formal skirt (R50), a pair of
earrings(R70) and a patent leather purse(R65) – but doesn't have enough money to buy
all three. After much consideration, she decides to forgo the earrings and the purse and
buy the skirt, though she wanted the earrings as well. Find out her opportunity cost if she
buys the skirt.
Solution: Number of Economic Alternatives = 3 (skirt for R50, earrings for R70 and purse for
R65)
Desired Alternative = R50 (skirt)Next Best Alternative = R70 (earrings)
Now, applying the above mentioned opportunity cost formula:
Opportunity Cost = 50 – 70 = -20
Resources
Resources are the inputs, or factors of production, used to produce the goods and
services that human wants. Because goods and services are scarce, choices must be
made.
Scarcity - the available resources are insufficient to satisfy people's wants - is universal.
Scarcity occurs when, at a zero price, quantity demanded is

greater than quantity supplied. In other words, if the good were
free, there would be a shortage of the good because more of
the good would be demanded than supplied. Most goods and
services are scarce. The concept of scarcity suggests the
necessity of rationing goods and services in some manner. The
most common way to do this is by using the price system. When
a price is put on a good or service, people have to choose
what products they will spend their income on.

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All individuals, households, business firms, communities, nations - rich and poor alike -
confront scarcity. The fundamental economic problem is the appropriate use of limited
resources to produce the goods and services that we value most.
The resources (also called inputs or factors of production) that can be used to produce
goods and services are divided into four main categories:
Land
Land, the gifts of nature such as air, water, land surface and minerals lying beneath the
earth's surface.
Labour or manpower
Labour, the time and physical or mental effort devoted to producing goods and services.
Capital
Capital, goods made by people that are used to produce other goods and services
(factories, tractors, buildings, power plants, hand or power tools, machinery, equipment,
transportation networks, etc.).
Human capital
Human capital is the knowledge and skill people possess from education and vocational
training.
Entrepreneurial ability
Entrepreneurial ability, the resource that organises land, labour and capital. The
entrepreneur is the person who sets up a firm by combining all factors of production in
order to produce a good or service.
While labour receives wages or salaries for the work, the entrepreneur expects to receive
profits for his efforts.
The true cost of anything that is scarce is its opportunity cost, what is given up to get it.

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In other words, the opportunity cost of an action is the highest valued alternative forgone.
Every society must figure out what is referred in economics as the "how", "what" and "for
whom" to produce:
1. How to utilise its resources efficiently - it is the choice among different resource
combinations and techniques used in the production of a good or service. A good or
service can be produced with different resource combinations and techniques; the
problem is which of these to use. Since resources are limited, when a greater quantity is
used to produce a particular good or service, less quantity is available for the production
of another good or service. The problem facing society is choosing the right resource
combination and production technique so that the cost in terms of the resources used
for each unit of the good or service it decides to produce will be minimal.
2. What combination of goods and services to produce -Since resources are scarce, no
economy can produce as much of every good or service as desired by everyone. More
of a good or service means less of others. So, society must choose which goods and
services to produce and in what quantities.
3. How much of each good to distribute to each person – The problem of how to divide up
what has been produced among the consumers, that is, how many of the consumers'
wants can be satisfied. Scarcity ensures that society cannot satisfy the wants of all its
members.
Activity 1
Complete Formative in Formative Assessment Workbook

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ABSOLUTE AND COMPARATIVE ADVANTAGE
International Trade
If you walk into a supermarket
and are able to buy South
American bananas, Brazilian
coffee and a bottle of South
African wine, you are
experiencing the effects of
international trade.
International trade allows us to

expand our markets for both goods and services that otherwise may not have been
available to us. It is the reason why you can pick between a Japanese, German and
American car. As a result of international trade, the market contains greater competition
and therefore more competitive prices, which bring a cheaper product home to the
consumer.
Trading globally gives consumers and countries the opportunity to be exposed to goods
and services not available in their own countries. Almost every kind of product can be
found on the international market: food, clothes, spare parts, oil, jewellery, wine, stocks,
currencies and water.
Services are also traded: tourism, banking, consulting and transportation.

A product that is sold to the global market is an export, and a product that is bought from
the global market is an import. Imports and exports are accounted for in a country's
current account in the balance of payments.

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What Is International Trade?

International trade is the exchange of goods and services between countries.
In most countries, it represents a significant share of gross domestic product (GDP).

This type of trade gives rise to a world economy, in which prices, or supply and demand,
affect and are affected by global events.
Political change in Asia, for example, could result in an increase in the cost of labour,
thereby increasing the manufacturing costs for an American sneaker company based in
Malaysia, which would then result in an increase in the price that you have to pay to buy
the tennis shoes at your local mall. A decrease in the cost of labour, on the other hand,
would result in you having to pay less for your new shoes.
Without international trade, nations would be limited to the goods and services produced
within their own borders.
Risks of international trade

Companies doing business across international borders face many of the same risks as
would normally be evident in strictly domestic transactions. For example,
 Buyer insolvency (purchaser cannot pay);
 Non-acceptance (buyer rejects goods as different from the agreed upon

specifications);
 Credit risk (allowing the buyer to take possession of goods prior to payment);
 Regulatory risk (e.g., a change in rules that prevents the transaction);
 Intervention (governmental action to prevent a transaction being completed);
 Political risk (change in leadership interfering with transactions or prices); and
 War, piracy and civil unrest or turmoil;
 Natural catastrophes, freak weather and other uncontrollable and unpredictable

events,

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In addition, international trade also faces the risk of unfavourable exchange rate
movements (and, the potential benefit of favourable movements.
Increased Efficiency of Trading Globally

Global trade allows wealthy countries to use their resources - whether labour, technology
or capital - more efficiently. Because countries are endowed with different assets and
natural resources (land, labour, capital and technology), some countries may produce
the same good more efficiently and therefore sell it more cheaply than other countries.
If a country cannot efficiently produce an item, it can obtain the item by trading with
another country that can.
This is known as specialisation in international trade.
 Let's take a simple example. China and South Africa both produce cotton sweaters
and wine. China produces 10 sweaters and six bottles of wine a year
 while South Africa produces six sweaters and 10 bottles of wine a year.
Both can produce a total of 16 units:
 China, however, takes three hours to produce the 10 sweaters and two hours to
produce the six bottles of wine (total of five hours).
 South Africa, on the other hand, takes one hour to produce 10 sweaters and three
hours to produce six bottles of wine (total of four hours).
But these two countries realise that they could produce more by focusing on those
products with which they have a comparative advantage.
China then begins to produce only wine and South Africa produces only cotton sweaters.
Each country can now create a specialised output of 20 units per year and trade equal
proportions of both products. As such, each country now has access to 20 units of both
products.

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We can see then that for both countries, the opportunity cost of producing both products
is greater than the cost of specialising. More specifically, for each country, the opportunity
cost of producing 16 units of both sweaters and wine is 20 units of both products (after
trading). Specialisation reduces their opportunity cost and therefore maximises their
efficiency in acquiring the goods they need. With the greater supply, the price of each
product would decrease, thus giving an advantage to the end consumer as well.
Note that, in the example above, South Africa could produce both wine and cotton more
efficiently than China (less time). This is called an absolute advantage, and South Africa
may have it because of a higher level of technology. However, according to international
trade theory, even if a country has an absolute advantage over another, it can still benefit
from specialisation.
Other Possible Benefits of Trading Globally

International trade not only results in increased
efficiency but also allows countries to participate in a
global economy, encouraging the opportunity of
foreign direct investment (FDI), which is the amount of
money that individuals invest into foreign companies
and other assets. In theory, economies can therefore
grow more efficiently and can more easily become
competitive economic participants.
Absolute advantage
A country is said to have an absolute advantage over another country in the production
of a good or service if it can produce that good or service using fewer real resources.
Equivalently, using the same inputs, the country can produce more output.
The concept of absolute advantage can also be applied to other economic entities, such
as regions, cities, or firms, but we will focus attention on countries, specifically in relation to
their production decisions and international trade flows.
 Export those goods and services for which a country is more productive than other
countries

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 Import those goods and services for which other countries are more productive than
it is
Principle of Absolute Advantage

To explain the principle of absolute advantage, suppose that there are two countries (USA
and Japan), producing two goods (food and cars), using labour as the only input. Goods
can be traded without costs and workers are immobile between the two countries, but
mobile between the two sectors within a country. All workers in a country are equally
productive. Production technology in Japan differs from that in the USA, see Table 1.
 We assume that Japan requires three units of labour to produce one unit of food,
whereas the USA requires only two units of labour.
 Similarly, Japan needs six units of labour to produce one car, whereas the USA needs
eight units of labour.
Since Japan is more efficient in the production of cars and the USA is more efficient in the
production of food, Japan has an absolute advantage in the production of cars and the
USA has an absolute advantage in the production of food.
We say that the two countries have mutual absolute advantage.

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In the following example, India can produce three times the wheat that Bangladesh can
on one acre of land, and Bangladesh can produce three times the cotton. The two
countries therefore have mutual absolute advantage
Gains from specialisation

Let us suppose that these two countries enter into an agreement to trade 300 MT of wheat
for 300 MT of cotton. This would double both wheat and cotton consumption in both
countries
Because both countries have an absolute advantage in the production of one product,
specialization and trade will benefit both
Comparative advantage
People, businesses and nations can produce for themselves all the goods and services
they consume, or they can concentrate on producing one good or service (or, possibly, a
few goods or services) and then trade with others, that is, exchange some of their own
goods or services for those of others.

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The principle of comparative advantage states that each nation (or individual) should
specialise in the production of the good or service in which he is more efficient (or less
inefficient).
Stated differently, an individual or a nation has a comparative advantage in producing

something if he can produce it at a lower opportunity cost than anyone else.
This stems from the fact that people's abilities differ and, as a result, different people have
different opportunity costs of producing a particular good or service.
It should be noted that it is not possible for anyone to have a comparative advantage in
everything. Thus, gains from specialisation and trade are always available when
opportunity costs are different.
Specialisation requires a system of exchange to enjoy the fruits of comparative

advantage. A voluntary exchange must yield mutual gains, that is, to make both parties
better off.
 One is better off specializing in what one does relatively best
 Produce and export those goods and services one is relatively best able to produce
 Buy other goods and services from people who are better at producing them
When countries specialise in producing the goods in which they have a comparative
advantage, they maximise their combined output and allocate their resources more
efficiently
Absolute advantage VS comparative advantage

 A country enjoys an absolute advantage over another country in the production of
a product if it uses fewer resources to produce that product than the other country
does.
 A country enjoys a comparative advantage in the production of a good if that good

can be produced at a lower cost in terms of other goods

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The Flows of Globalization

During the past 15 - 20 years or so, countries have started to trade more freely (without
trade restrictions) with each other. At the same time communication and transport costs
have declined. This has led to an increase in the tradable goods portion of world output
over the past 15 years.
Since 1995 e-based connectivity has become extremely popular and a new global IT
outsourcing industry came into being – service providers all around the world are
networking more efficiently.
As a result, rapidly expanding trade in both goods and services has become an
increasingly powerful engine in driving the global growth dynamic."
Stephen Roach, Morgan Stanley, July 18, 2005.
In a global economy, no nation is self-sufficient. Each is involved at different levels in trade

to:
 sell what it produces,
 acquire what it lacks and also
 produce more efficiently in some economic sectors

than its trade partners.
Trade promotes economic efficiency by providing a wider variety of goods, often at lower
costs, because of
 specialisation,
 economies of scale
 and the related comparative advantages.

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There is also a downside to international trade since it can at time be a disruptive

economic and social force as it changes the conditions under which wealth is distributed
within a national economy, particularly due to changes in prices and wages.
The scale, volume and efficiency of international trade have all continued to increase
since the 1970s. The concepts of space and time that have to do with transporting goods
converged – the time taken to transport goods decreased while containerisation made
increased volumes as well as less handling time possible.
Exporters and importers now have access to a wider market and spend less time sourcing
and pricing goods and wait shorter periods for delivery.
The transport systems in countries is becoming more and more aimed at complying with
the requirements of international trade, e.g. road, rail and sea travel: it is possible to load a
container in Pretoria, transport it by road to the railway station (or it can be collected by
the rail carrier), the same container is transporter by rail to Durban harbour, where a
system of cranes will load it onto a ship.
Without international trade, few nations could maintain an adequate standard of living.
With only domestic resources being available, each country could only produce a limited
number of products and shortages would be prevalent.
Global trade allows for an enormous variety of resources – from Persian Gulf oil, Brazilian
coffee to Chinese labour – to be made more widely accessible.
It also assists with the distribution of many different manufactured goods that are
produced in different parts of the world to what can be labelled as the global market.
Wealth becomes increasingly derived through the regional specialisation of economic
activities. This way, production costs are lowered, productivity rises and surpluses are

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generated, which can be transferred or traded for commodities that would be too
expensive to produce domestically or would simply not be available. As a result,
international trade decreases the overall costs of production worldwide.
Consumers can buy more goods from the wages they earn, and standards of living
should, in theory, increase.
Global Trade Flows

Global trade flows have recently shifted with many developing countries participating
more and more in international trade.
The nature of what can be regarded as international trade has also changed: today we
find many global commodity chains, e.g. Walmart. This trend reflects the strategies of
multinational corporations positioning their manufacturing assets in order to lower costs
and maximise new market opportunities, while maintaining their supply chains and the
freight distribution systems supporting them.
Another emerging trade flow is the imports of resources from developing countries,
namely energy, commodities and agricultural products. This diverges from the
conventional role of developing countries exporting resources.
Another factor leading to the growth in international trade has been an increasing share
of manufacturing activities taking place in developing countries with manufacturers
seeking low cost locations for many stages of the supply chain.
There are however significant fluctuations in international trade that are linked with
economic cycles of growth and recession, fluctuations in the price of raw materials, as
well as disruptive geopolitical and financial events.
The international division of production has been accompanied by growing flows of

manufactured goods, which make up a growing share of international trade: for example,

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there is relatively less bulk liquids (such as oil) and more dry bulk and general cargo being
traded.
When international is looked at geographically, we will see that a small number of

countries still dominate international trade. These countries are located in North America,
Europe and Asia – commonly referred to as the triad. The USA, Germany and Japan
alone account for about one third of all global trade. The G8 countries (Canada, USA,
Britain, France, Germany, Italy, Japan, Russia) account for half of the global trade.
However, this dominance is being challenged by emerging economies, e.g. BRICS: Brazil,
Russia, India, China and South Africa. These geographical and economic changes are
also reflected over trans-oceanic trade with Trans-Pacific trade growing faster than Trans-
Atlantic trade.
The closer economic entities are, the more likely they are to trade, which explains that the
most intense trade relations are within Western Europe and North America. A similar, but
more recent trend, has also emerged in Asia, particularly between Japan, China, Korea
and Taiwan.
Activity 2
Complete Formative Assessment in Formative Assessment Workbook

102
VALUE CHAIN
What is a value chain?

A value chain is a high-level model of how businesses receive raw materials as input, add
value to the raw materials through various processes, and sell finished products to
customers
The value chain was first described and popularised by Michael Porter in his 1985 best-
seller: Competitive Advantage: Creating and Sustaining Superior Performance
A value chain is a chain of activities and products pass through all activities of the chain in
order. At each activity the product gains some value. The chain of activities gives the
products more added value than the sum of added values of all activities.
Primary activities
Michael Porter identified a set of interrelated generic activities that are common to a
wide range of businesses. This model is known as the value chain and shows the primary
activities:
 Inbound logistics: where input material are received, warehoused and inventoried
 Operations: this is where the inputs are transformed into the final product through
value-creating activities

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 Outbound logistics: the purpose of these activities is to get the finished product to
the customer. These activities include fulfilling orders, warehousing, despatch and
delivery to the client
 Marketing and sales: activities aimed at getting buyers to purchase the product. This
includes selecting channels, advertising, pricing of products, etc.
 Service: all activities that maintain and enhance the value of the product, such as
customer support, repair services and so on
The goal of the primary activities is to create value that will be more than the cost of
providing the product or service, so that a profit can be made.
Support activities
The support activities include:
 administrative infrastructure management: providing finance, managing quality,

etc.
 human resource management: recruitment, development and compensation of

employees
 information technology: technology and development of technology to support the

activities in the value chain
 and procurement: purchasing raw materials and other inputs
Support activities are often seen as overheads, but can also be used to develop a
competitive advantage over the competition.
The value chain of the business links to the value chain of upstream suppliers and
downstream buyers.
The result is a large stream of activities that are a value system.

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Dinesh Pratap Singh's visualization for Porter's Value Chain on Wikipedia
Inbound logistics
Logistics is the management of the flow of materials and services between the point of
origin and the point of use in order to meet the requirements of customers or corporations.
Inbound logistics is the management of goods and materials which are arriving at your
business premises. . For example, in a tomato canning plant, inbound logistics is
concerned with the receipt and storage of empty cans and raw tomatoes, which arrive
separately.
Activities:
 Purchasing of cans, labels and raw tomatoes
 Transporting these inputs to the business
 Receiving the goods at the business

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 Inventory and storage of the goods
 Supply of the goods when needed to operations
Objectives of inbound logistics

1. Ensure that material received and related information are processed and made
available promptly to production, store and other department.
2. Completely and accurately document goods received and goods returned.
3. Accept only items that were properly ordered.
4. Accept only materials that meet purchase order specification.
5. Safeguard goods received.
6. Ensure that vendor, inventory and purchase order information is accurately updated
to reflect receipt.
7. Return rejected items promptly.
8. Completely and accurately document all transfer to and from storage.
9. Properly transfer all materials requisitioned.
10. Maintain safe working conditions and storage of hazardous materials.

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Outbound logistics
Movement of material associated with storing, transporting, and distribution of a firm's
goods to its customers. In our example, this will be storage of canned tomatoes and
despatch of these cans to customers.
Activities
 Inventory and Storage of finished products
 Supply of the finished product to despatch
 Delivery (or collection) of the finished product to the client
Benefits
 Timely delivery
 Meeting customer demand with perfection.
 Balance between supply and demand
We can therefore say that logistics involves the integration of information, transportation,
inventory, warehousing, material handling, packaging and even security activities of the
business.

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Foreign Exchange
In finance, an exchange rate (also known as the foreign-exchange rate, forex rate or FX
rate) between two currencies is the rate at which one currency will be exchanged for
another
The foreign exchange market (forex, FX, or currency market) is a global, worldwide
decentralised financial market for trading currencies. Financial centres around the world
function as anchors of trading between a wide range of different types of buyers and
sellers around the clock, with the exception of weekends.
The primary purpose of foreign exchange is to assist international trade and investment, by
allowing businesses to convert one currency to another currency. For example, it permits a
US business to import British goods and pay Pound Sterling, even though the business'
income is in US dollars.
Every country in the world has their own unit of money. This is called currency. For
example:
 in the United States they have US Dollars (USD)
 In Zimbabwe, they use Zim Dollars (ZWD)
 Botswana uses the Pula (BWP)
 In England and the United Kingdom they use the British Pound (GBP)
 In Europe, they also have a combined currency called the Euro (EUR)
When your organisation starts importing or exporting, you will become involved in foreign
exchange. Imports are goods bought from another country and exports are goods sold to
another country.
When you import goods from another country, you will have to pay for those goods either
in the currency of the other country, or in US Dollars or Euro Dollars, depending on their
requirements.

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When you export goods to another country, you can request your customer to make
payment either in Rand or another currency, usually US Dollars or Euro Dollars.
In the foreign exchange market, it is most important to realise that every price, or
exchange rate that is quoted is relative. That is to say that one U. S dollar is worth R7.565
(the rate as per 28 Oct 2006) also implies that one rand is worth 13 cents (U. S): US$ 0.13.
All foreign exchange rates are related to each other as reciprocals. All daily newspapers
show the exchange rates for the present day and the preceding day, these can be seen
in the financial sections of the newspaper.
For many of South Africa’s major trading partners, such as Britain, the United States of
America and many others, there are forward rates quoted for periods of thirty, ninety and
one hundred and eighty days into the future. For example, the thirty day forward rate
indicates the rate at which a trader can contract today for the delivery of some foreign
currency in thirty days time, with the actual transaction and payment taking place after
thirty days.
Large banks both in South Africa and overseas comprise the main exchange market. As is
typical of all forward markets, there is no set physical location where trading takes place.
Instead, the banks around the world, are linked electronically through their trading rooms.
A typical room may have access to sixty telephone lines and five or more video quotation
screens. The market does not have regular trading hours and it is open somewhere in the
world twenty four hours per day. In addition, some large corporations have access to the
market through their own trading rooms.
Small corporations and individuals that are too small to possess trading rooms engage in
foreign exchange transactions through their own banks.
One way of thinking about currencies is to regard them as being essentially similar to other
assets, and subject to the same basic laws of supply and demand. When a particular
currency is unusually in good supply, it would be expected that its price would fall. The
price of one currency in terms of another currency is merely the exchange rate between

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the two currencies.. In foreign exchange, the flow of payments between one country and
the rest of the world gives rise to the concept "balance of payments".
If the expenditures of a country exceed its receipts, then that country has a balance of
payments deficit. However, if the receipts exceed the expenditures, then the country has
a balance of payments surplus. The balance of payments covers the flow of all kinds of
goods and services among nations, including the movement of real goods, services,
international investment and all types of financial flows.
In order to understand how considerations of the balance of payments influence

exchange rates consider the following simple example:
Assume that country X trades with other countries and always imports more goods than it
exports. Because of this there is always an inwards net flow of goods into country X.
Some way, X must pay for these goods, therefore, it is assumed that the government of this
country prints sufficient additional currency to pay for the extra imports. However, such a
situation can not go on for very long without causing a change in the exchange rates
between X and its trading partners.
As the trading partners continue to send more and more goods to X, they collectively
have fewer and fewer real goods for themselves, but they have a growing supply of the
currency of X.
As the world's supply of the currency of X swells, it becomes apparent that it has only a
few uses. Holders can use the currency of X to buy other currencies or to buy goods from
X. However, the accumulation of the currency of X continues until there is an excess
supply in the prevailing exchange rate, therefore the value of Xs currency must fall.
Similarly, as X cannot continually import more than it exports without the value of its
currency falling, no country can continually consume more than it creates, without the
same result.
The ideal for any country is to balance the imports and exports. This way, the currency
earned from exports supply the currency needed to pay for imports.

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Calculating the value of foreign currency:

To calculate from the foreign currency to rand, use the exchange rate quoted in the
newspaper or by your bank and multiply the amount of the foreign currency with the
exchange rate to get the amount in rand that you will have to pay for the currency:
You have to pay an amount of US$ 12 890, for goods that were imported:
US$ 12 890,00 (foreign currency) X 7.565 (exchange rate) = R 97 512.85
This means that you will pay R 97 512.85 for the goods you have imported.
To calculate from the rand to the foreign currency, use the exchange rate quoted in the
newspaper or by your bank and divide the amount rand with the exchange rate to get
the amount in foreign currency that you will have. You want to go overseas and you have
R12 890 that you want to convert into US$. How much US$ will you have to spend?
R12 890,00 divided by 7.565 (exchange rate) = US$ 1703.90 (foreign

currency)
This means that you will have US$ 1703.90 to spend overseas. This is not a lot of money.
The reason for this is that we are a small country and our currency is not strong compared
to those of the overseas big industrial countries.
This is a disadvantage for people who want to import and who want to travel overseas.
On the other hand, exporters can benefit from a weaker currency as they can get more
rand for exports in a foreign currency.
The price of crude oil

To explain foreign exchange and the
balance of payments we will look at two
items that have a big influence on the
balance of payments and inflation in this
country: the price of crude oil and the gold
price.

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At the moment, South Africa imports crude oil from overseas which is then refined in South
Africa to produce petrol, diesel, etc.
We do not have crude oil reserves and SASOL, who manufacture petrol and related
products from coal, cannot manufacture enough to supply the entire country. Let us then
consider the effect that the price of crude oil will have on our petrol price, considering
that we have to import and then pay in a foreign currency.
If the price of one barrel of crude oil is US$ 60 and the US$ rate is US$ 7.565, it costs us:
US$ 60 X 7.565 = R453.90 to buy one barrel of crude oil.
This is just the purchase price, remember the oil must still be transported to us, then it must
be refined and transported to the garage/service station close to us so that we can put
petrol in our vehicles.
Can you see that you have to look at both the crude oil price and the exchange rate in
order to find out what we pay per barrel?
Considering that about three years ago, the price of crude oil was US$ 20 to US$ 25 per
barrel, is it surprising that our petrol price has gone up so much?
Since petrol and diesel is used to transport

all the goods we use, when the petrol price
goes up, it follows that the price of all the
goods also go up. This affects us negatively
since it pushes up the inflation rate and
affects the country’s balance of payments
– we now pay more for importing petrol
than we did about three years ago.
To cover this increase in payment for imports, we have to increase our exports as well.

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The gold price

South Africa is one of the largest exporters of gold and platinum in the world. This means
that the price of gold and platinum also affects our country’s economy.
About three years ago, when the price of crude oil started rising, the gold price also
started rising. At the time when oil was US$ 20 -25, gold was selling at approximately US$
250 per ounce.
At the moment, gold is trading at about US$ 596 per ounce. This means that the price of
gold has more than doubled during the last three years.
A gold mine that is exporting gold now can expect to receive:
US$ 596 (foreign currency) X 7.565 (exchange rate) = R 4508.74 per ounce.
If we assume that the gold price three years ago was US$ 250 and the exchange rate was
about US$ 9.155, a gold exporter would have received R 2287.50 per ounce.
Once again, you must consider both the price of gold and the exchange rate in order to
calculate the rand value per ounce of gold.
Of course, the exporter still has to pay bank charges plus the cost of transporting the gold
to the overseas country.
Because we export gold, platinum and other ore such as iron, a higher price for these
exports have a positive influence on our balance of payments. Of course, exporters, as
you can see from the above examples, want higher exchange rates.
Overseas travel
On the other hand, a higher exchange rate means that we get less overseas currency
when we travel, since it costs us more to buy the foreign currency.

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Activity 3
INTERNATIONAL TRADE AGREEMENTS

Introduction to International Trade
In its most basic form, trade is the exchange of value between people or entities (i.e.
organisations, companies, countries).
Value could be in the form of money, goods, services or title to rights, license, patent or
property.
International trade is defined as trade occurring between people or entities located in

different countries
International trade, however, is more than just a mere exchange of value between parties
from different countries. International trade is a dynamic system of interrelationships with
broad political, economic, social and technological consequences for a nation. Success
in the international trading arena during the 90s has brought Ireland unprecedented
prosperity, encouraged innovation, and enhanced their national confidence. Their
exports rose from twenty three billion US Dollars in 1990 to sixty three billion US Dollars in
1998. Critics of international trade would say that international trade brings about a
dangerous interdependence between countries and proliferates international brands and
products such as Mac Donald’s, blue jeans, Disney movies at the expense of national
brands, cultural identities and traditions.

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The Encarta Encyclopaedia defines money as any medium of exchange that is widely
accepted in payment for goods and services and in settlement of debts. Money also
serves as a standard of value for measuring the relative worth of different goods and
services. The number of units of money required to buy a commodity is the price of the
commodity.
Differences between International Trade and Domestic Trade

In order to determine the difference between trading locally or trading with other
countries, one only needs to think about the issues that affect business on a daily basis.
These include how companies market, sell and deliver their product, how they are paid,
how they are protected legally, and how they conform to the regulatory environment.
A local operation deals with customers based in the same country. This means that the
customer and company both fall under the same legal system, use the same currency,
have similar, or at least familiar cultures, and familiar business practices. It is important that
the prospective international trader is aware of the differences between doing business
locally and internationally, make the necessary adjustments, and minimize the risks of
trading internationally.
Areas where differences are found between trading domestically and trading
internationally include:
Customs
Goods will cross international borders when delivering to the buyer: The implication of
having to send goods across an international border is that various declarations have to
be made to the customs authorities of both the exporting and importing countries. This
process involves official paperwork through which correct and timely information must be
provided to the appropriate customs authority.
Transport
International trade often involves transport over long distances and the use of different
modes for the same consignment: There are numerous parties involved in the international

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movement of goods. These include port authorities, carriers, sub-carriers and freight
forwarders.
Goods must be sufficiently well packaged and packed to endure regular handling and
difficult conditions during the journey.
Import and export regulations

A requirement to comply with export and import restrictions and regulations applicable to
the product
Each country has export and import

regulations and restrictions. It is the
government’s duty to protect their
citizens, animals, enterprises and
natural resources from international
threats. They also have international
obligations to regulate trade in
certain products such as nuclear
weapons or endangered species.
Most countries impose various tariff and non-tariff measures on imported products to
effect the required control. This may mean that the price of an imported product is
inflated by the customs duty making it more expensive to the consumer in the imported
country thereby providing protection for domestic industry.
Exporters will discover that there are a range of import regulations affecting access to an
international market. These could include the imposition of import quotas, a requirement
for import permits and technical, health and environmental regulations.
Health and technical requirements are often in place to ensure that products leaving or
entering their country meet certain standards or comply with certain rules.

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Legal systems and national laws

Countries are sovereign and have their own legal system. Laws are determined by
parliament or a similar constitutional authority of a country. Although the legal system of
many countries may appear to be similar, having common roots, the actual laws,
particularly commerce laws, may differ substantially.
It is not uncommon that a certain business practice is legal in one country and illegal in
another. For example, demand guarantees issued by banks are widely used around the
world yet are considered illegal in the USA. These differences impact on the international
trader in the areas of compliance and where trade disputes arise.
Agency agreements could differ widely between operations in Arabic countries and
European countries. Differing legal systems can frustrate the handling of trade disputes.
Should an importer default on payment, legal action may have to be taken in the
importer’s country and the exporter would have to hire legal representation in that
country. The dispute often leads to expensive and slow legal processes as a result of
differing interpretations of contractual rights.
Socio-political systems
Social and political systems differ between countries and affect how commerce is
conducted. In politically controlled economies the ruling elite may dictate with whom a
trader may do business in their country. Social structures affect the way in which
enterprises operate such as how decisions are made. These situations will impact on
market entry strategies and choice of agents or distributors. For a South African trader,
dealing with Eastern and Arabic countries will require a different understanding of social
and political issues than the understanding required when dealing with more familiar
western economies such as the UK.
Different currencies
Each country has its own currency. When trading with another country, the question of
which currency is accepted for payment will arise. A South Africa exporter may either insist
on receiving Rand in payment, or accept the currency of the buyer’s country, or request

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to be paid in a third country currency such as the US dollar. The issue of currencies
therefore impacts on the skills of the trader to determine value in another currency and to
be aware of the risks associated with accepting or paying in another currency. This would
mean knowledge in the use of currency hedging instruments such as forward contracts or
options.
Infrastructure (physical and service

The level and quality of international trade-related transportation and service
infrastructures could affect the traders ability to deal with and deliver goods to buyers in
another country or receive goods from other countries. Without a port or airport
infrastructure, exporters would not be able to trade with countries on other continents.
Without a reliable and credible banking and insurance infrastructure, traders would not be
able to accept and make international payments, obtain international insurance cover or
obtain trade finance. Furthermore, traders cannot assume that their foreign trading
partners have similar infrastructures to what is available to them. The trade deal is
therefore affected by both the importing and exporting infrastructure.
Religion, culture and language

Although religion, culture and language may differ within a country, there is normally a
dominant religion, culture or language or at least an agreement on uniform language
and business cultures. When trading with other countries such as the Islamic countries or
countries in Asia and South America, South African traders must deal with dominant
languages and cultures different to those in South Africa. This may require product
adaptation to suite those markets, which could involve having to label products in other
languages. Marketing approaches may differ substantially. Certain religions impose
restrictions on certain products, for example, alcohol. Islamic countries only allow alcohol
sales in controlled environments and only certain people may purchase alcohol in those
countries. These differences therefore impact on the viability of those markets and the
level of expenditure required to enter those markets.
Business practices

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Different banking and other services can impact on an international business operation.
Conditions under which these services are made available are different and could affect
access, or may not be available in the way in which a South African trader is familiar.
Negotiation practice and deal making is often entwined with cultural norms. Middle
Eastern and Asian cultures require more social interaction between the parties before
business may be discussed. Woman executives may not be well received in certain
cultures.
Geographical position
Many of South Africa’s lucrative markets are many thousands of miles away and can only
be reached by air or sea. These include the European Union, USA and Japan. The impact
on a South African trader would be less face to face meeting opportunities with clients,
and when meetings are planned, it involves costly air travel and hotel accommodation,
and long traveling times. Delivery times to clients in these markets are long when shipping
by sea. To deliver a container to a port in Japan requires a journey time of three to six
weeks depending on the carrier.
International Rules and Standards

International rules and standards are very important.
In order to do business with suppliers and manufacturers, for example, there has to be a
common method of conducting trade which is understood and accepted by both
parties. In addition, for trade to take place across international borders, there has to be
some form of regulation accepted by most countries. Inter-governmental and non-
governmental organisations are responsible for devising these rules. Most governments
and business organisations have accepted the credibility of these organisations to
determine these rules. Examples of international rules that govern international trade are:
 international rules governing the issue of bills of lading for a transport document (The
Hague Visby Rules)
 rules for transporting dangerous goods (IMO - Dangerous goods code)
 international terms of delivery (Incoterms)
 rules for the issue of documentary credits (ICC publication - UCP 500

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The benefits of international trade

Once an enterprise begins to trade internationally, the business strategy will change.
Management become more aware of the needs of markets in other parts of the world,
know more about what international competitors are doing, become aware of other
strategies and technologies and often discover new sources for business inputs outside of
their country of manufacture. They begin to explore possibilities of setting up operations in
other countries to be closer to markets or to take advantage of attractive offers made to
investors by other governments. The benefits of international trade can be classified as
follows:
Access to new markets

The first advantage of going international for any enterprise is the opportunity to sell into
new markets. A new enterprise does not try to enter every market in the world, but even
by choosing to enter one new market, the enterprise immediately expands its selling
opportunity. The implications of new markets mean new sales and new customers. New
markets however bring challenges such as increased competition. Additional investment
in marketing and other operations may also be required to succeed in breaking into new
markets.
Extending product life cycles

For certain industries, and for certain markets, international trade offers the enterprise an
opportunity to extend the life cycle of products that may already be in their mature phase
in the South African market. These products may be considered new and still in the growth
phase in certain markets. Volkswagen South Africa were able to produce and sell 5000
“old-shape” Jettas to China at a time when the South African market were launching a
new shape.
Diversification of markets
Most enterprises who rely solely on the South African market could suffer as a result of
economic downturns in South Africa. The benefits of international trade allow enterprises
to spread their risk over a number of markets. If a South African company were active in

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other markets, that company would have been able to balance its losses in non
performing markets with gains in performing markets. Hikes in South African interest rates,
as happened during 1999 where the prime rate reached 26%, resulted in reduced sales in
high value items such as cars, luxury goods and clothing. At the same time the US market
was experiencing an unprecedented boom in retail sales and could have offered South
African companies with great sales opportunities.
Economies of scale and reduced cost of production

New customers and new sales bring increased production volumes. This allows for more
efficient use of production resources resulting in the cost per unit of production to
decrease. Greater specialisation of operations becomes viable which in turn, reduces the
overall cost of production, making the products more competitive. At certain levels of
production, it becomes viable to invest in automation, or invest in new technologies to
improve the overall competitiveness of the company. Higher production volumes enable
companies to negotiate better deals for input costs.
Optimisation of production capacity

During the 70s and 80s, trans national companies built factories in South Africa to
circumvent high import tariffs. Even though the size of the market did not really justify the
establishment of a factory, it was lucrative for companies such as BMW and Mercedes as
they could charge inflated prices due to high import protection. This reasoning is borne
out in that the same manufacturers found it economically unviable to establish factories in
much larger markets that did not have the same levels of import protection. This situation
has resulted in South Africa having a capacity to manufacture relatively high tech
products such as cars. Volkswagen and BMW are now leveraging their South African
operations to supply right hand drive markets in China, Australia, the UK and others.
Seasonal advantages
Where the demand of a product is seasonal, for example, winter/summer clothing or fruit
drinks, suppliers can take advantage of markets with opposite seasons. For example, a
South African manufacturer of fruit drinks exports his drinks to northern hemisphere markets
during the South African winter, and as a result, can maintain full production throughout

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the year. Where supply is affected by seasons, such as the growing of fruit and flowers,
exporters take advantage of opposite season markets where demand remains constant
but local supply is affected by the seasons.
Foreign exchange earnings

A major attraction to South African investors is companies whose earnings are partly
offshore and in a foreign exchange. Foreign exchange earnings provide enterprises with
numerous advantages. These include possible gains as the South African rand gradually
weakens against major currencies, a hedge against unfavourable economic conditions in
South Africa and better management of exchange risks.
Exposure to new technologies and innovations leading to product/service and range

improvements:
International competition and exposure to international markets encourages, and usually
requires companies to improve their competitive situation. Companies need to adopt
new technologies and innovations to improve product quality, product offering, service
and overall competitiveness. The sophistication of Japanese, US and European markets
puts additional pressure
International Contracts
The contracts underlying a typical
international trade transaction
International sales contracts can
be very complicated since the
involving parties, being the
importer and exporter, are
situated in different countries,
each with its own legal system.
There are many participants in a
single transaction, for example banks, freight forwarders, shipping lines, airlines, etc.
Depending on the Incoterm either the exporter or the importer would have to contract
the services of these organisations for delivery and payment arrangements.

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The international sales contract

The international sales contract serves as a record of agreement between the exporter
and importer, detailing important information such as terms of delivery and payment and
other conditions of sale. This information is important to other commercial agreements that
the exporter or importer will have to enter into with service providers. Normally it is
evidenced by the exporter issuing a pro-forma invoice stating his terms and conditions of
sale and the importer confirming using an international purchase order stating his
conditions of purchase. These documents together constitute an implicit agreement on
which business can be done.
The contract for pre carriage

Depending on the Incoterm, either the importer or the exporter will enter a contract of
carriage with a transport agent or operator to arrange for the delivery of the goods to the
port of loading including the payment of port charges and export customs clearance.
The contract for main carriage

Again depending on the Incoterm agreed on, either the exporter or importer would be
responsible to enter a contract of freight with the main carrier i.e. the shipping line, to
transport the goods form the country of export to the country of import. In the case of sea
freight the contract between the shipper and the shipping line is evidenced by a transport
document, for example a bill of lading.
The contract for on-carriage and customs clearance

Particularly in the case of sea freight, once the goods arrive at the port of destination, they
must be transported to the point of final delivery and import customs clearance effected.
Depending on the Incoterm, either the importer or the exporter would contract a
transport/clearing agent to arrange for this and the contract is evidenced through a
transport document or clearing instructions issued by the shipper and accepted by the
agent.

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The marine insurance contract

The Incoterm will determine who has insurable interest and therefore which party would
be responsible to take out marine insurance for the transit of the goods. The contract
between the insurer and the assured will be in the form of a policy and will state the
details regarding the consignment, values and what type of insurance cover is
applicable.
Contract for documentary credit

When accepting payment by means of documentary credit, the issuing bank contracts to
pay the exporter for the goods providing the exporter complies with the terms and
conditions set out in the credit. A documentary credit is a contract between the issuing
bank and the applicant, usually the importer.
The credit insurance contract

When selling on open account terms, the exporter may decide to insure himself against
the risk of non payment by the importer. In order to do this, he would take out a contract
of credit insurance with a specialised institution which offers this type of service (i.e. CGIC).
The Forward exchange contract (FEC)

The FEC is taken out by an exporter or importer to protect themselves against risks in the
fluctuation of the exchange rate of their currency against the currency in which the deal
is being done.
Risk in international trade

When buying and selling goods we generally understand this area of risk to be the risk of
the goods arriving lost, damaged or discrepant (discrepant- the number, quantity or
quality of goods delivered is not the same as that which should have been sent). This type
of risk is also referred to as transit risk.
In visualising the journey which an international consignment undergoes when moving

from seller to buyer it easy to see that this type of risk is present every step of the way.

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Imagine that we have a consignment of dinner plates which is going to be packed in a

factory in Moscow, transported to a container depot in Moscow, warehoused and then
consolidated into a container with other cargo, transported by train to St Petersburg,
loaded ob board a ship, transported by sea to Felixstowe, then offloaded, transported to
a container depot in Leeds, unpacked and then finally delivered in breakbulk form to the
buyer in Leeds by road.
Let us look at the different risks of loss, damage or discrepancy to which this cargo will be
subject:
The consignment is subject to loss, damage or discrepancy whilst being:

1. packed at the supplier’s premises
2. loaded at the supplier’s premises for transport to the container depot
3. transported to the container depot
4. warehoused at the container depot
5. stuffed into the container
6. loaded onto rail
7. offloaded from rail in St Petersburg
8. loaded on board ship in St Petersburg
9. discharged from ship in Leeds
10. transported to Leeds container depot
11. destuffed from the container
12. warehoused at the container depot
13. loaded onto vehicle at the container depot
14. transported to the buyer’s premises in Leeds
15. offloaded from the vehicle at the buyer’s premises
So, at no fewer than 15 stages in this operation will the cargo be subject to risk!
Who bears this risk?

In other words, if loss, damage or discrepancy occurs at any one of these 15 stages, who
(seller or buyer) will be responsible? It depends.

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Risk Managers are people who assess different areas and degrees of risk and then make
suggestions as to how risks may be minimised.
In this case they may suggest that the seller and buyer consider waiting for enough goods
to be awaiting shipment to fill a container which can be packed at the supplier’s premises
and only unpacked once it gets to the buyer’s premises. Adopting this suggestion would
reduce many of the cargo handling risks to which the cargo is subject.
At the end of the day however, as careful as the responsible parties may be, seller and
buyer need to realise that, if there is loss, damage or discrepancy then there is going to be
a cost- either the seller will need to replace the goods or the buyer will not pay for them.
Who bears this cost will depend on where the risk passed from seller to buyer during the
course of the consignment’s transit from seller to buyer.
The party who is bearing the risk at each particular stage of the consignment’s transit must
either decide to bear that loss himself in the event of anything happening to the
consignment, or to pass it on by insuring the goods against this type of risk. By tradition,
such insurance has come to be referred to as Marine Insurance, irrespective of the
mode(s) of transport used (air, road, rail or sea).
In initiating transactions of this nature, sellers and buyers need to be very clear about
where precisely the seller’s risk ceases and the buyer’s begins- there have probably been
more court cases around this aspect of international trade than any other.
The problem is that in the field of local trade it is more often than not understood that the
seller is responsible for the risk in the goods until they are delivered safely to the buyer.
This is very seldom the case in international trade- in international trade, risk can pass from
seller to buyer at any one of thirteen points between the time the goods have been
allocated to the sales contract by the seller until they are delivered to the seller.

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What determines who should bear the risk?

There may be many factors but the answer to this question mainly revolves around who
(seller or buyer) is better able to exercise control over the goods.
In our Moscow scenario for instance we would have to ask who has better control over
the goods from the time they leave the seller’s premises until they arrive at the Moscow
container terminal. Common sense would seem to suggest that it will always be the seller
but this may not necessarily be the case. What if the only export customer of the Moscow
seller was the Leeds buyer but, on the other hand, the Leeds buyer bought from hundreds
of sellers around Moscow and had at his disposal a fleet of trucks to transport these goods
to the container depot?
The answers to this type of question will determine the point at which sellers’ risk ends and
buyers’ risk begins. It is worth noting that once sellers’ risk has terminated, the risk will never
revert back to the seller at a later stage.
Costs in international trade transactions

For every responsibility there is a cost. For example, in arranging and carrying out the
transport of goods from seller to buyer (and the associated cargo handling operations)
there is a cost associated with every stage of the goods’ transit. Somebody (usually the
freight forwarder or customs broker/ clearing agent) needs to be paid to prepare and
submit documents for export and import customs clearance. In the case of basic raw
materials such as iron ore and coal very often it is the total cost of moving goods from the
point of origin to place of delivery that will exceed the cost of the goods at their point of
origin. In other examples customs duties and other statutory charges (such as port dues)
will far exceed the cost of transport, forwarding, clearing and insurance.
At this point it may be worth posing the question- “Why do people buy and sell goods
internationally?”
A particular consignment of goods will be traded internationally if the total cost of the
goods when delivered to the buyer is equal to, or less than, the cost of local equivalents or
the delivered cost of equivalents from any other country.

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As a result, those thinking about importing goods will need to have the means of
calculating these delivered costs as accurately as possible. In identifying the elements of
cost which will be incurred in moving the goods from point of origin to point of final
delivery, both seller and buyer will need to be very clear on who will be responsible for
what costs: the seller will build into his price the costs for which he will be responsible and
the buyer will need to add the costs for which he is responsible to the seller’s price in order
to arrive at the delivered cost. It is then a question of comparing this delivered cost to the
cost of locally available equivalent goods and/ or the delivered cost of equivalents
available from other countries in order to determine whether the particular transaction is
commercially viable.
There are great risks in importing commodities either to use as raw materials or for resale.
One of the main risks (apart from loss, damage or discrepancy) is that costs are not
properly identified and/or are not properly calculated – many importers have incurred
substantial losses as a result of inaccurate cost calculations.
It has been mentioned that for every responsibility there is a cost so that sellers and buyers
will allocate these costs in the same way that they allocate responsibility- depending on
who (seller or buyer) is able to negotiate the lower cost, that will be the party who will take
on the responsibility and that cost.
Goods in transit risk

Cargo, while in-transit to an international
destination, is exposed to all kind of perils
such as fire, spoilage, theft, sinking of the
vessel, explosions, war and strikes, etc. In
addition, international transportation often
includes the use of more than one mode
of transport necessitating multiple handling
of cargo. Sea freight, in particular, poses
many hazards that could affect the safety of the cargo. These are also many different

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parties, in different countries, with differing capabilities to handle cargo, resulting in a

greater likelihood of loss or damage to cargo. The insurance company understands the
international trade process and the requirements associated with the international
movement of goods. The marine insurance policy thus provides cover for most of the perils
likely to be encountered and incorporates all the costs associated with the loss.
Foreign exchange risks

One of the main attractions of exporting is the chance to earn a major currency. By
pricing your product in one of these currencies, you are able to protect yourself against
the sudden fluctuations in your local currency or benefit form a weakening when
receiving a foreign currency. The exporter can also take out a forward exchange contract
to protect himself against unexpected fluctuations in the exchange rate during the time
waiting to be paid. That is if he will be receiving a foreign exchange on a future date but
would like to fix an exchange rate today.
An importer exposes himself to exchange risk if he agrees to pay in a foreign currency.

Because exchange rates fluctuate the importer is uncertain of what the cost of that
foreign currency is going to be against his local currency on the day he needs it to make
the payment. If his local currency has weakened it could result in the transaction
becoming economically non-viable. An importer can protect himself against risks by three
alternatives. If he has a holding of a major currency in a bank account, he is not exposed
to exchange his local currency for the foreign currency. Provided the seller is willing to
accept that particular foreign currency. A foreign exchange contract enables the
purchase of foreign currency at a specified rate on the date the contract is established,
but only takes delivery of the currency at a set date in the future specified in the contract.
The rate is called the forward rate but is not a prediction of the rate. The contract is
inflexible as the foreign currency can only be acquired on the set expiry date of the
contract. Options offer the importer a more flexible approach to buying foreign currencies
at the forward rate. The importer buys a rate of exchange for a future date at a premium.
The premium is paid up front. The importer can decide whether or not to use the option.

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Incorrect documentation/information resulting in delay, non-payment etc.

It is very important that the importer and exporter make sure that there are no
discrepancies on the documents. Wrong documents, or documents presenting wrong
information could have numerous costly consequences. An exporter presenting wrong
documents to a bank for payment under letter of credit could experience delays or could
even loose the deal. Wrong information on transport documents could result in goods
going to wrong destinations or getting lost. Incorrect documents could raise the suspicions
of customs officers resulting in the impounding of the goods and costly storage charges.
Wrong information could also result in wrong tariff headings being determined. Incorrect
declarations on insurance policies could make the policy void thereby exposing you to
risk. This could result in wrong duties being paid. Whenever problems have to be corrected
costs are incurred, usually in a foreign currency. These add up making the deal
unprofitable.
Buyer non-payment risk

Dealing with the foreign marketplace is a two-fold risk. If you insist on full payment in
advance you may minimise your sales opportunities. If you grant liberal credit terms or
even allow an open account, you risk slow or non-payment. Each country or market has
its own set of rules, standards and business laws making the collection of payment a very
unsettling process. Credit risk insurance allows you to expand sales and reduce
transaction time as you can offer open account terms to your customers without the risk of
non-payment. It replaces the need to request for documentary credits as a method of
payment. It also protect your foreign receivables against unexpected customer default.
Supplier performance risk

It is the seller's responsibility to complete and assemble the commercial documents
representing the shipment. These documents will be listed in the purchase order or in the
Documentary Credit as those required for the purposes of payment or acceptance of
drafts. The importer can ensure that the supplier does not ship later than a certain date by
stating a latest shipment date. The transport document reflects the date of shipment. If
shipment was late this would be shown on the transport document which would indicate
non-performance. Other concerns of the importer would be short shipments, poor

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packaging and packing, quality, correctness of order etc. The importer could either
request a pre-shipment inspection company a freight forwarder, or his agent
representative in the country of supply to check the shipment. He would then call for a
report of findings to be issued by the nominated party. Another tool available to the
importer is the use of demand guarantees. Demand Guarantees basically state that if the
supplier does not perform according to some basic conditions, a payment is made to the
importer. The payment is made by the guarantor bank and is independent of the supplier.
This type of document is used when advance payments are made on orders.
The Trade Cycle

The importer has agreed to buy goods from the seller and they then establish a
purchase/sale agreement. The seller then issues a proforma invoice with the information
regarding terms of payment and other conditions of sale and is sent to the importer. The
importer might need that suppliers proforma invoice to make application for an
authorisation to import the goods. For example he might need to apply for an import
permit. Only when he has authorisation to import the goods may he issue a purchase
order which is sent to the seller. The seller then issues a finalised proforma invoice. If
payment is to be made by letter of credit, the buyer uses the proforma invoice as the
basis for the letter of credit application form.
The seller prepares the shipment. He must complete a bank declaration for exchange
control purposes and attests it at his bank. A customs declaration is submitted for customs
clearance and the export is authorised. If required pre shipment inspections is done. Port
authority and carrier documents are prepared. When goods are loaded on board the
ship a bill of lading is issued. Other documents like the commercial invoice, packing list etc
with the bill of lading are presented to the bank for payment (if payment is to be made by
letter of credit).
Alternatively the documents are presented to the buyer for payment. The original
documents are sent through his bank to the importer and the importer will have to
arrange payment or accept the drafts in order to receive original documents. Copy
documents are often sent directly to the buyer or his agent to facilitate customs

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clearance. Unless allowed by the seller, the importer can not take delivery of those goods
based on the copy documents.
The copy documents have now arrived with the clearing agent. The importer issues
clearing instructions to the clearing agent and based on the copy documents will arrange
for customs clearance and with the Department of Customs and Port clearance will the
port authorities which will normally involve the payment of port charges. The original
document has since arrived with the importer who has now paid for the goods and can
hand over the original transport documents to the clearing agent. Based on the original
transport document and proof of the port and customs clearance the clearing agent asks
the carrier to issue a container terminal order (CTO), which authorises release of the
container from the port for delivery to the importer. The importer has received and paid
for the goods and the cycle ends.
Role players in a typical trade cycle

It is important to know who all the different role players are in an international trade deal.
It has been determined that there are as many as twelve participants in a simple
international trade transaction, each requiring documentary submissions. Up to fifty
documents could be generated in the process in order to obtain the necessary
authorisation and services required to deliver the cargo to the importer and ensure
payment of the goods. It is therefore important that you are able to identify the various
role players and understand their respective functions. The role players are:
The importer
The importer is often referred to in documents as the consignee or buyer. The importer of
the goods is the person who takes responsibility for the imports customs clearance. If a
middleman delivers to a buyer in the importing country, and takes responsibility for the
import customs clearance of the goods, he is the importer and not the final buyer.
Importers can however be of various types. Other types include agents, distributors, local
subsidiary of a multinational, end users or retailers.

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The exporter
The exporter is often referred to in documents as the seller, supplier or consignor. Only if
you take responsibility for the export customs clearance of the goods can you consider
yourself an exporter. If you are using a middleman, who buys from you and then takes the
responsibility for the customs clearance of the goods, he then becomes the exporter and
not you. The supplier could also be the exporter of the goods, in which case, he will ship
the goods according to the conditions of the purchase contract and provide
documentary proof to this effect to the importer or the applicable intermediary.
The Central Bank

The Reserve Bank of South Africa has imposed exchange control regulations and therefore
plays an important role in the management of the foreign proceeds. The Central Bank is
therefore concerned with the balance of payments and must ensure that the country
earns as much foreign currency through export exports as it spends on imports. In many
developing countries, owing to the lack of stability of their local currency and because
imports often exceed exports in value, strict measures (exchange control regulations)
have to be legislated to protect their foreign exchange reserves.
The Commercial Bank

The bank is a very important role player in the area of international trade. Firstly it provides
finance various means and offer, facilitate or guarantee international payment on your
behalf. For example the issue of letters of credit on behalf of the importer and the
attestation of F178 declarations for the exporter. They also deal in foreign exchange.
The Port or Airport Authorities

When exporting using sea freight, goods will move through both a port of export and a
port of import, and often in modern day shipping, through transhipment ports as well.
Shippers are normally required to pay charges and comply with documentary formalities.
The Department of Customs and Excise

The Department of Customs and Excise is responsible for enforcing the Customs Act.
Customs clearance is a requirement throughout the world when moving goods out or into

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countries. All Customs Administrations work on a similar basis and require a declaration of
the import from the importer or his agent. Customs authorisation for importation is
provided on the basis of the declaration, and where relevant, duties and taxes are
charged. Customs are responsible for implementing the import regulations of the country
and therefore control the type of goods entering the country. From the exporter's view,
this means that in order to send goods outside of the country, you must comply with the
export regulations. This is controlled by the submission of a customs declaration to the
appropriate customs office. Another important function of Customs is to keep record of all
exports which is needed for reporting on trade statistics.
The transporter/carrier/operator
The transporter/carrier is the transport operator/owner of the vehicle carrying the goods
form the supplier's warehouse, across international borders to the importer's warehouse.
The movement might have to include different modes or transport, namely, road rail, air or
sea, and thus different transport operators. Examples of transporters/carriers are shipping
lines, airlines, rail operators or road hauliers.
The freight forwarder

Traditionally the role of a freight forwarder has been largely confined to arranging
transport and preparing documentation as an agent of the shipper (importer or exporter
depending on the Incoterm). Over time, this role has changed with the development of
containerisation and multimodal transportation. Instead of acting only as intermediaries,
many freight forwarders have become transport operators offering container services as
well as multimodal inland and international transportation.
The clearing agent

The clearing agent acts on behalf of the shipper (importer or exporter depending on the
Incoterm) and arranges for the customs clearance of the imported goods. This role entails
determining the correct tariff heading of the goods, calculating and collecting the import
duties and taxes payable and arranging the customs clearance. The clearing agent
presents the documents and payment to Customs and receives authorisation to release
the goods to the importer. In the case of "less than container loads" (LCL) the goods are

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collected from a specialist Customs licensed warehouse whereas, in the case of full
container loads (FCL), the container is taken directly form the container terminal to the
importer's premises.
Insurance companies
Insurance companies are important in the managing of international trade risks. Marine
insurance is needed when transporting goods and credit insurance provide exporters with
security against non payment.
Verification bodies
Verification bodies could be institutions or private companies. They provide independent
verification to the process. This could be a chamber of commerce verifying that the
goods are of that country's origin, a laboratory verifying the qualify and specs of a
product, a pre-shipment inspection company providing verification on various parameters
as requested by their client, health verification for plants or animals etc.
Foreign Consulates
The regulations of the importing country may require that you obtain legalisation of your
documentation (transport document and commercial invoice), by their consulate based
in your country.
Government departments
Many of the government departments are involved in international trade in some way.
This is either in the form of regulation or trade facilitation. For example the department of
trade would be involved in trade promotion. They negotiate trade agreements with
foreign countries, assist with market research and trade shows etc. They are also involved
in regulation in the form of issuing export or import permits, determining duty levels etc.
Other departments such as health and agriculture involve themselves on the levels of
standards and quotas.

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The trade cycle - a practical example

We will consider the movement of a container load of goods from an exporter in Sydney,
Australia to an importer in Vienna, Austria.
A trucking company will be contracted to uplift an empty container from a container

depot and take it to the exporters premises for packing. Once packed, it will be trucked
to the container terminal in Sydney from where it will be loaded on to a vessel to either
Bremerhaven, Hamburg or Trieste in Italy.
Once landed in Europe the container will either be railed or trucked to Vienna and then
delivered to the Viennese consignee. The empty container will be transported from the
importer’s premises to an empty container depot.
While all this is being planned and executed, information about the consignment needs to
be transmitted to many different parties.
The process normally starts when the importer places an order on the exporter. At that
time the importer will inform his bank of the details of the goods and make arrangements
to pay for them. At the same time the importer will advise the freight forwarder details of
the consignment- what it is, the supplier’s address and contact details, when the goods
will be available. This information will be provided by the forwarder in the importer’s
country to his counterpart in the exporter’s country.
The forwarder in the exporter’s country will liase with the exporter and arrange to have the
empty container delivered to the exporter’s premises for packing when the goods are
ready and in time to meet the vessel on which the forwarder has booked the container. In
order to book the container the forwarder will have given the shipping line relevant

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information about the container and its contents. This information is used by the shipping
line to prepare a manifest of all cargo on the vessel as well as other documentation.
Before the goods can leave Australia it will be necessary for them to be cleared through
Australian Customs. To effect this the forwarder will give Customs the necessary
information regarding this consignment in the form of a Customs declaration. Customs
may require that the goods undergo a Customs examination prior to being shipped.
Depending on the terms under which the goods are being purchased by the exporter,
they may have to be insured by the Australian forwarder on behalf of the exporter. This will
involve giving the insurance company detailed information about the consignment on an
insurance declaration.
Once the goods have been shipped all the information about them will be conveyed by
the Australian forwarder to his Austrian counterpart, who will use the information to effect
Austrian Customs clearance and arrange for the landing and delivery of the container
with the parties concerned. Alternatively, the Austrian forwarder may have to release that
consignment to a clearing agent, who will then be responsible for final clearance and
delivery.
It is important to note that, before releasing this consignment, the forwarder needs to be
satisfied that Customs and harbour authority releases have been effected and that all
monies due to the forwarder have been paid. Once the goods have been released there
is little that can be done to recover any outstanding monies or to ensure that the relevant
authorities are satisfied to release the cargo.
Information about the consignment may be conveyed electronically, via email, or it may
have to be conveyed by the physical movement of documents.
The shipping line will also have conveyed the information to its offices at the port of
discharge and any intermediate points at which the shipping line is responsible for the
movement of the container.

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International Logistics
For goods to be moved from the exporter's premises to the importers premises, many
services, facilities and vehicles are needed. These components are essential in
international logistics. It can be divided into six important elements namely infrastructure,
port authorities, carrier, freight forwarders, clearing agents and specialist services.
Infrastructure
In most parts of the world the state
supplies the necessary
infrastructure. Without these roads,
railways and ports exporting would
be extremely difficult. Countries
differ in their level of available
infrastructure. Even if your own
country has adequate
infrastructure, the country you're
dealing with might not. This will have an impact on the mode of transport and form of
shipment being used. If ports are unable to handle containers then goods must be sent in
breakbulk. In most African countries the inland transport channels are very
underdeveloped and your cargo might be subject to pilferage and perishability.
Port Authorities
The port authorities (usually state owned) control the operations at the ports and is
concerned with the maintenance of the equipment. Interaction takes place through the
wharfage clearance document and charges are collected by the port mangers in the
form of a wharfage, cargo handling and storage fees.
The Carrier
The carrier is the owner or controller of the ship, train, truck or aeroplane. Shipping lines is
also referred to as container operator. The carrier will manage the mode of transport, sell
space and issue the transport document. Examples of carriers are shipping lines
(Safmarine), rail companies (Spoornet), trucking companies (Cargo Carriers) and airlines

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(Virgin). Pre-carriage refers to the transport before main carriage i.e. the train to port. The
main carriage is from port of loading to port of destination. On carriage is from port of
destination to the final point of delivery.
Freight Forwarder
The freight forwarder acts as a broker for transport but does not own a vessel. He has the
expertise and facilities to handle cargo, complete customs and transport documents and
book space. Therefore he has accounts with Portnet, Spoornet and carriers; and disburse
on behalf of the exporter.
Clearing Agent
The clearing agent acts on behalf of the importer in the importing country. He takes
delivery of the goods and arranges for customs clearance. Duties and freight charges are
calculated as soon as goods are received from the carrier into the bonded warehouse.
On the receipt of payment for the duties, the clearing agent will release the goods.
Specialist services
Bonded warehousing enables the exporter to store goods in the importing country and his
agent in that country can draw goods out of bond stores based on orders. Only when sold
or cleared out of bond, is duties payable. Groupage operators consolidate cargo from
different exporters into one container for shipment and charge per ton freight. Stevedores
provides loading and off-loading equipment of a ship from on-board ship.
Trade Regulations
The question is why would governments regulate trade? What motivates them to do that?
There are two reasons essentially.
The first is that governments are concerned about harmful products coming across the
border into their country so they are concerned about protecting their citizens and the
resources of their country. For example, they would not want harmful products such as
pharmaceuticals that have not been registered properly or narcotics or something like
that coming into the country and being a threat to the local citizens, so they would have

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laws that prevent you from doing certain things or bringing certain things into the country
or at least limiting products into the country.
The other reason is that governments want to protect local industry. If foreign competitors
can export into the black market without any problems, no duties, no regulation, then it is
quite possible that the local factories could close down because they are not competitive
enough. It would mean that jobs would be lost. So the government would put certain
obstacles in the way of foreign competitors, such as customs duties or quotas or
something like that, that limits the foreign competition, thereby ensuring local jobs, of
course governments have to be careful. They have to play a game of diplomacy here,
where they don't put their regulations too high, coming in, or the foreign countries would
reciprocate. Meaning that the exporters wouldn't get into those markets. So it is a little bit
of give and take.
How governments enforce trade regulations

There are two common methods in which both the importing and exporting country
ensures that the trade transaction adheres to the applicable regulations and restrictions.
They are the exchange control and Customs clearances.
Exchange control clearance

When establishing a Documentary Credit, the importer would have to produce the
relevant permits and authorisations to import that product. The Documentary Credit will
be drawn up by the bank and regulations such as pre-shipment inspections will be called
for by the Documentary Credit. In this way the exporter is obligated to comply with the
regulations in order to be paid for his goods. The exporter would have to complete an
exchange control declaration F178 stating the description of the goods being exported,
their value and when these funds will be coming into the country.
Customs clearance
The exporter will have to produce the relevant documents such as export permits,
exchange control declarations (F178), or police clearance certificates in order to obtain
Customs clearance. The importer would have to produce relevant documents such as

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permits, inspection certificates and health certificates to obtain Customs clearance in the
importing country.
Customs duties: Most countries use the internationally accepted product coding system
called the Harmonised System (HS), devised by the World Customs Organisation, to classify
all products in a uniform manner. Each product is identified internationally using the same
four, up to six digit code. Each country has its own schedule of import tariffs for each
product. These charges are called customs duties and are charged either as a
percentage of the value (ad valorem, meaning according to value), or as a specific duty
per unit or according to a unit of mass. Products may attract a combination of ad
valorem and specific duties.
Tariff barriers to trade

Tariffs include fees or charges that are levied on an imported product as a percentage of
the value of the product or as a fee based on quantity or weight of a product or a fixed
fee, or combinations of the three.
Countries apply tariffs to imported, and sometimes exported goods for different purposes.
The most common include:
Protection of local manufacturers

If it is determined that local manufacturers are unable to compete with international
manufactures, the government, via the Department of Trade and Industy’s Board for
Tariffs and Trade, will determine a duty which must be charged on an imported product to
bring its price up to a price at which the domestic manufacturer is able to supply.
Protection of foreign exchange reserves using surcharges: During the 80s South Africa
imposed a 40% surcharge on certain luxury goods such as watches, over and above the
import duties, to discourage the importation of these items in order to protect scarce
foreign exchange reserves.
National revenue

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Many developing countries rely on customs duties as a major part of their national
revenue. In 1998, over 50% of Lesotho’s national revenue was derived from the South
African Customs Union. This reliance makes it difficult for these countries to do away with
customs duties.
Examples of tariffs include:
Customs duties
Most countries use the internationally accepted product coding system called the
Harmonised System (HS), devised by the World Customs Organisation, to classify all
products in a uniform manner. Each product is identified internationally using the same
four, up to six digit code. Each country has its own schedule of import tariffs for each
product. These charges are called customs duties and are charged either as a
percentage of the value (ad valorem, meaning according to value), or as a specific duty
per unit or according to a unit of mass. Products may attract a combination of ad
valorem and specific duties.
Countervailing and antidumping duties

A country may decide to impose countervailing duties on imported products if it were
discovered that these products were unfairly priced as a result of the foreign supplier
receiving export subsidies. Antidumping duties are punitive duties applied to products
considered to have been dumped on the importing country’s market. Countries have
antidumping legislation which determine the circumstances in which antidumping duties
may be imposed. Both countervailing and anti dumping duties are charged over and
above normal customs duties and may even be levied retrospectively.
Surcharges
Surcharges are levies charged on imported products, over and above the customs duty.
In the case of South Africa, the purpose of surcharges were to place a penalty on the
importation of luxury goods with a view to discourage their importation, in order to protect
the country’s foreign exchange reserves. As it was a foreign exchange issue, the
regulation was introduced by the Reserve Bank rather than the Board of Tariffs and Trade.
The 40% surcharge on luxury items was abolished in 1995 as part of South Africa’s

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commitment to the General Agreement on Tariffs and Trade (explained in the next
section).
Border tax
Certain countries charge a border tax over and above import duties. The main reason for
this tax is national revenue. This tax is most common in least developed countries. South
Africa does not apply any border taxes to imported goods. However, VAT is charged on
imports as with all domestic transactions.
Other forms of import tariffs

Official charges such as port charges are sometimes only levied on imported goods, or
the port charges for imported goods is higher than for exported goods. The South African
Harbour and Revenue Services charge a 0.89% of value wharfage fee on exported
products and 1.78% wharfage fee on imported products.
Non-tariff-barriers to trade
Non-tariff barriers can be defined as any regulation or prohibition, or any other non-tariff
measure that impedes the importation of goods, or places local producers at an unfair
advantage.
Examples of non-tariff barriers include:
Import licensing
For certain products, countries may require the importer to obtain an import license (also
known as a permit). A country may believe the importation of certain products need to
be controlled. Import licenses allow the authorities to stipulate who may import those
products, and in some cases, how much of the product the importer may import.
Governments often prefer to regulate the importation of strategic products such as oil to
protect the interests of the economy as a whole.
For example: South African importers of arms and ammunition, second hand motor
vehicles, aircraft and aircraft parts require import permits.

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Quotas
Import quotas are applied to certain products to protect local manufacturers or to limit
imports from specific countries whose products pose a threat to the domestic market.
Quotas are mainly prevalent in the textile and agricultural sector as a means of protecting
local manufacturers and farmers.
For example: Import quotas are applied to sensitive industries such as the textile industries.
The European Union have quota agreements with China and many African countries
restricting the quantity of textiles that they may export to the EU.
Prohibitions
In certain instances, a country may prohibit the
importation of a product due to religious reasons, or
simply to protect a local manufacturer.
For example: Iran prohibits the importation of toys. The
reason could be that the Iranian government may be
concerned about the influence “western” toys may
have on their children, or because they have a toy
manufacturing industry which needs to grow in a local
market free of competition.
Exchange controls
Certain countries impose exchange controls making it illegal for their citizens to hold
foreign currency bank accounts. The controls affect importers in that exchange controls
may limit their access to foreign exchange, prohibit cash in advance payments for imports
(deposits on order), insist that all payments are made by means of letter of credit and
introduce compulsory credit insurance and forward exchange cover arrangements. These
measures make it difficult for importers to be efficient and limit their ability to source their
products internationally.
Example: South Africa prohibits importers to make large deposit payments (cash in
advance of delivery) to foreign sellers without authorisation from the Reserve Bank.

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Requirement for pre shipment inspections

Certain countries, most of them African, require that all goods destined to that country
must have been inspected by a specified company or institution before being shipped to
that country.
Example: All goods destined to Tanzania must be inspected by SGS before export. A clean
report of findings is issued, which is required for import customs clearance in Tanzania. The
inspection serves to check whether the importer is being charged market related prices.
Sanitary and phyto-sanitary regulations

It is understandable for a country to be concerned about the impact products may have
on the health its people, animals and plants. Imported products could be carriers of a
disease or pose a threat to the indigenous plant species. The authorities must be sure that
these products have been tested and cleared of any health risk. Countries control the
importation of animal and plant products through the requirement for veterinary, sanitary
or phyto-sanitary certificates. Countries may however require that the products be tested
and approved by their own institutions rather than recognising the certification of the
exporting country’s institutions. This increases the cost and time spent on entering a market
and placing the exporter at a disadvantage to local competition.
For example: The much published “mad cow” disease in Britain (1997) resulted in other EU
countries placing a ban on the importation of British beef. Once a European technical
committee had determined that British beef was now safe to eat (1999), the ban was
lifted. France however, refused to accept the findings of the EU technical committee
based on the advice from their own scientists and continued to refuse entry to British beef.
The suspicion was that the French government were using the situation to protect their
own farmers from British competition.
Technical regulations and standards

Countries, usually via an industry body, place minimum technical standards on certain
products to ensure standards are maintained in their country to protect their consumers.
Endorsements from appropriate standards bodies are often required to be displayed on
the products. It is understandable that countries want to protect their consumers by
placing minimum technical standards on certain products. However, for a company

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embarking on an export drive, these standards can become barriers to entry, not
because their product is sub standard, but simply because the standards for each market
differ, with some countries insisting that testing and certification be carried out by their
own standards institutions. This process is costly and time consuming and places local
producers at an unfair advantage.
For example: The EU have mandatory standards for certain products with regard to
health, safety and the environment. Under these requirements the affected products
should be tested and receive the CE Mark of approval before being allowed into the EU.
Environmental regulations
Mainly developing countries have stringent
environmental regulations. If a certain company
has a track record of environmental degradation,
for example, their factories are guilty of excessive
pollution or their products are a result of having to
destroy natural forests, their products may be
banned from entering many countries. A more
commonly found environmental regulation
encountered is the requirement for the use of bio
degradable or recyclable packaging materials.
Products may be sent back to the exporter or even destroyed should the customs
authorities of the importing country discover the product to contravene their
environmental laws.
For example: Germany applies strict laws on packing materials and labels. These materials
must be biodegradable or recyclable.
Marking and labelling requirements

Most countries have packing and labelling rules for imported products. These rules
stipulate what must be included in the label, the sizes of the label, the language to be
used etc. Countries usually require labels to state country of origin, weights, dimensions
and composition.

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For example: The USA has very strict labelling requirements which include stipulations such
as the name of the manufacturer with contact details, ingredients, weight and country of
origin. Products not conforming are disallowed into the USA.
Human rights issues

Industrialised countries are using trade sanctions as a means to pressure developing
countries to improve their labour standards. For example, should it be known that a
factory is using children as workers, the products from that factory are banned from
entering certain countries.
For example: Pakistani soccer balls were banned from importation into the USA when it
was discovered that those factories were employing ten year old children to sow the
soccer balls.
Rules for customs valuation

Countries have rules in determining customs values for duty purposes, and when and how
the value of duties are payable. These rules are often not transparent and sometimes
applied arbitrarily. This could result in unexpectedly high customs charges making the
imported product uncompetitive.
For example: South Africa base their customs valuation on the invoice value of the goods
including transport, official charges and commissions up until loading on the main carrier
in the country of export. Tanzania base customs valuation on their determination of what
the price of the goods should be and not necessarily on the invoice value of the goods.
Rules of origin
Countries enter preferential trade agreements with trading partners wherein they offer
favourable treatment of one another’s products. Exporters however, have to meet rules of
origin requirements in order to benefit from the preferences. These requirements are
however often unclear, or change regularly, and differ from country to country and even
from product to product making it difficult for exporters to meet a range of requirements.
For example: With the Free Trade Agreement now being implemented between South
Africa and the EU, South African exporters must comply with the rules of origin and obtain
a EUR1 certificate of origin issued by Customs in order to qualify for the preferences

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provided in the agreement. Should they wish to benefit from the General System of
Preferences offered by the EU, they would need to obtain a Form A certificate of origin
issued by the Department of Trade and Industry. The rules of origin for the GSP may differ
from those for the EU Free Trade.
Import customs regulations

Each country has customs legislation which empowers the customs authority to carry out
their responsibilities of controlling imports, collecting duties and fees and gathering trade
statistics. These regulations empower the customs authorities to check, search, inspect
and reject consignments. They may require certain supporting documents and stipulate
how a customs declaration and clearance procedure must take place and who may
process the declaration. These regulations also deal with temporary imports or transit
cargo.
For example: Mozambique stipulates that all import clearances must be processed by
licensed “Despecantes” of which there are only a few in the country.
International Payments
As a result of the risks and complexities associated with an international trade transaction,
specialised payment methods have been developed over the years to address the needs
of the various parties.
A payment method refers to the procedure used to negotiate payment between buyer
and seller in relation to the handing over of title of goods.
The trade finance industry’s classical definitions of payment methods include cash-in-
advance (also known as cash with order), bank collections (also known as cash against
documents), letters of credit and open account. Two newer methods that can be added
to the definition of payment methods due to technological advances are credit cards
and e-commerce.

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Payment terms refer to the time allowed to elapse before payment is due.
Most of the payment methods allow for different terms of payment, otherwise referred to
as credit terms. Payment is either at sight, meaning payment is due as soon as
documentation is presented, or on credit terms. Usually the credit is offered in 30 day
blocks i.e. 30, 60, 90, 120 etc. from a date specified in the contract or from shipment date.
For example, an exporter selling on letter of credit can offer 90 days credit by requesting a
deferred payment credit or an acceptance credit. In effect, the importer takes receipt of
the documents once the exporter negotiates acceptance from the bank. The bank then
undertakes to pay the exporter in 90 days from shipment and the importer takes release of
the goods.
The recent growth of the global marketplace brings with it both opportunity and inherent
risks for both buyers and sellers. The goal for sellers, of course, is to be paid promptly
without having to initiate long-distance collection procedures. Buyers want to know that
the same merchandise they order will arrive on time and in good condition.
Businesses involved in international trade have to understand methods of payment, their
benefits and risks.
Buyer and seller negotiate payment methods based on factors such as:
 the amount of the sale,
 credit standing of the buyer,
 foreign exchange regulations in buyer's or seller's country,
 industry customs,
 competition and opportunities for repeat business.
The length of time the two parties have worked with each other and the amount of trust
built during that time also affect the payment methods they will find acceptable.
Common payment methods, their risks and typical uses are discussed below. For
definitions of trade terms, please see Glossary of International Trade Terms.
Several methods of payment are commonly used for short-term (sight to 180-day)
import/export transactions. As is discussed, each method offers differing amounts of risk-

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usually inverse--to buyer and seller. The key to successful payments is negotiating a
payment method that meets the needs of both parties, and then ensuring that the
required documentation is completed properly.
Cash in Advance (Prepayment)

With this method, buyer simply pays for the merchandise prior to shipment.
Risk/Usage
Offers the least risk to seller and the most to buyer. Typically used by strong, reputable
suppliers that dominate a market, or by sellers of low-value products with thin margins that
make credit impractical.
Documentary Collection
Seller prepares shipping documents and attaches them to a sight or time draft drawn on
the buyer-not the buyer's bank. After shipment has been effected, seller's documents are
then presented through banking channels to buyer's bank for presentation to buyer. When
buyer pays the sight draft or accepts the time draft, the documents are released to buyer
(drawee of the draft).
Risk/Usage
Unlike a letter of credit, the bank is under no obligation to pay the exporter in the event
that the drawee does not honor the draft. This method can limit risk to seller if structured
properly; however, it does not provide protection against country or credit risks. Used
when buyer and seller have some history of working together and a level of trust, but seller
is not willing to relinquish all control of the shipment.
Open Account
Seller ships the merchandise and sends the shipping documents directly to buyer.
Payment is made at an agreed-upon date thereafter via wire transfer, check or foreign
currency draft.

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Risk/Usage
Offers the lowest risk to buyer, since the shipment is received and inspected before
payment is made. This method provides the highest risk to seller, who loses control of the
shipment, requiring long-distance collection in the event of nonpayment. Used by buyers
and sellers with a long relationship and degree of trust and when seller is comfortable with
the relevant country risk.
Letter of Credit (L/C)

Buyer asks its bank to issue a letter of credit in favor of seller. Seller ships the merchandise
and presents required shipping documents. Payment is then made to seller by the
negotiating or paying bank. Two types of L/Cs--standby and commercial--are the most
commonly used methods of payment for international commerce.
Risk/Usage
Other than cash in advance, letters of credit offer seller the greatest protection, while
providing buyer with certain assurances through L/C documentation. Letters of credit are
used to alleviate risk on the part of both buyer and seller in cases where the two parties
have not established a long and trusting relationship.
Standby Letter of Credit (SLC)

Issued to back an obligation of the applicant, SLCs are not intended to be the primary
source of payment, which is often on open account. Standby L/Cs act as a bid or
performance bond, backing for open account trade terms or lease obligations, or support
for a credit line or other type of financial obligation. Documents are normally not required,
but buyer must have access to enough credit to cover the amount of the SLC.
Commercial Letter of Credit

Primary method of international payments because most buyers and sellers are not well
known to each other and a commercial L/C facilitates trade when buyer and seller do
not have absolute confidence in payment or receipt of merchandise. It covers shipment
of goods or payment for services and offers several protections to both parties:

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 Minimises credit risk for the exporter (seller), since payment is made by a negotiating
or paying bank
 Alleviates risk in buyer's country
 Provides greater assurance to buyer that goods will arrive as ordered and in good
condition
 Assures buyer that shipping documents will be in accordance with terms and
conditions of the letter of credit.
There are three main types of commercial L/Cs:
 Sight L/C requires payment when the beneficiary presents non-discrepant

documents.
 Usance L/C calls for payment at a future date, e.g., 30 days after shipment date,
and requires a draft drawn on the issuing/paying bank for the amount of the invoice.
 Deferred Payment L/C is similar to a usance L/C, but does not require a draft. It is
often used in European countries that assess high stamp taxes on drafts.
 Transferable Letter of Credit: Gives the beneficiary the right, but not the obligation,
to transfer the credit fully or partially to a third-party supplier. Transferable L/Cs are
typically used by middlemen or trading companies that do not have the needed
capital or do not wish to use their own capital to purchase goods to be delivered to
another buyer. They can be structured so that the names of the supplier and final
buyer are hidden. The disadvantages are high transfer costs and the difficulty of
structuring transactions to hide the buyer and seller names.
Documentation
Letters of credit require documentation that must be precisely in accordance with the
terms and conditions of the credit before payment will be made. Many payment delays
are due to discrepancies in documentation. These documents typically include:
 draft
 commercial invoice
 packing list

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 shipping document
 ocean bill of lading
 air waybill of lading
 inland bill of lading
 insurance policy/certificate.
E-commerce payment methods

Credit cards are an e-commerce payment method. However, due to the advent of the
Internet and the demand for other payment solutions by business-to- business, business-to-
consumer and business-to-government portals, banks and information technology
companies have developed a range of options. These include
 debit cards,
 smart cards,
 electronic links to bank accounts,
 digital cash etc.
These are all methods payment that can be used online.
From an international trade perspective, an initiative involving SWIFT (the Society of

Worldwide International Financial Telecommunications), a secure electronic exchange
used by financial institutions, and the TT Club, a grouping of the largest logistics service
providers, formed an organisation called Bolero. This system is essentially an international
clearing system for payments based on confirmation by logistics service providers that the
product being paid for has been shipped. This system mimics the letter of credit payment
system where a bill of lading document is required by a bank to initiate payment, Bolero
allows for digital confirmations between banks and logistics service providers to authorize
payment and release of goods.
How to choose between payment methods

An exporter must decide which payment method to use and which payment terms to
offer. Options that suit the exporter better is normally less suitable for the importer. This

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always causes tension between the buyer and seller when finalising the payment. There
are various factors that influence his decision. Some of them include:
The credit standing of the importer

Importers with good credit ratings require less stringent payment terms
The nature and length of the relationship between the exporter and the importer
This is the single most important factor. A long standing relationship generates trust which
allows exporters to sell on open account or cash against documents. Trust and
confidence in the other party go along way in both party's willingness to accept payment
terms bearing a higher degree of risk.
The economic and political stability of the importer's country

Buyers in politically and economically unstable countries will generally find it difficult to
secure favourable arrangements and terms. Cash in advance is a common payment term
for politically unstable countries. The determination under this condition has little to do with
the exporter's view of the importer's credit rating but rather to do with the risk of political
interference of the payment.
Competitive issues
What the competitors are offering in the market will affect what the exporter can request.
If competitors are offering 30 days it might be difficult to secure payment at sight.
Costs involved
Confirmed irrevocable documentary credits are attractive form a secure point of view,
but are more costly. The greater the number of sources of supply the buyer has, the more
competitive the seller needs to be, the better the negotiating position of the buyer
The advantages and disadvantages of payment methods

Payment Method Advantages: Disadvantages:
 Very secure for the  Difficult to sell

Cash in Advance exporter  Certain importing
countries prohibit cash

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Payment Method Advantages: Disadvantages:

 Provides ready cash on advance payments
that can be used for by importers
production
 Bank guaranteed  Most expensive form of
credit payment
Documentary  Payment can occur on  Documents must
presentation of comply to stringent
Credits
documents conditions
 Reduces commercial  Can be bureaucratic
and transfer risk
 Cheaper than  No bank guarantee
documentary credit therefore less secure
Bank Collections  Less stringent  ·Less commitment from
conditions the importer
 Less bureaucratic
 Convenient  Not very secure
Open Account  Good marketing tool  Can cause cash flow
 Bank charges are problems
minimal
Export cycle
From setting up an export deal to getting paid
Setting up the deal

Once you have established your sales contract, in that, either you are in possession of an
international purchase order, or a documentary credit stating you s beneficiary, you are
now ina positions to process the order. There are a few steps you should go through in
processing an export order. But first, you must wait until the deal has been properly
established, before committing your resources to the order.
Shipping the goods

Once the deal has been set up, you should take the
following steps.

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Read the purchase order/documentary credit very carefully and take note of the
requirements of the buyer. If there are any pre-shipment actions that must occur, these
activities must take place before you book the freight and load the container. Pre-
shipment activities could include pre-shipment inspections, health inspections or product
analysis, all of which must be done before the goods have been packed for shipping. If
any of these inspections are required, make arrangements with the appropriate service
providers and obtain the necessary certification before shipping the goods.
You are now in a position to complete and have your F178 attested with the bank. As an
F178 declaration is a commitment by you to the Reserve Bank, that funds will be brought
into the country in exchange for goods, you should not make this declaration until you are
sure the deal is going to happen.
You are now ready to pack and label the goods. At this point you can contact your
freight forwarder to make a booking on the next available carrier or the carrier offering
the service you require. You will furnish your forwarder with a freight forwarders instruction
and an attested F178, and request him to arrange for customs clearance and transport,
and marine insurance if required. You will at this point, arrange for him to collect the
goods or you will deliver the goods to his warehouse.
Your freight forwarder will deliver the goods to the carrier and obtain a transport
document as proof of receipt. He is now in a position to arrange for customs clearance
which will require the submission of a customs bill of entry DA 550, an attested F178 and a
transport document in the case of road, rail and road exports. He will then hand over the
transport and insurance documents to you.
You are now in a position to issue your commercial documents namely the commercial
invoice and packing list and can assemble you export documentation. This will include
your commercial documents, transport document, insurance document and verification
documents issued by third parties.

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Getting paid
Once all documents are ready and completed to the documentary credit, or if not using
a documentary credit, in accordance to the purchase order, you are now in a position to
present the documents for payment. In the case of documentary credits, you will submit
the documents to the negotiating bank, usually your bank, who will check the documents
ensuring that they are in accordance with the L/C and make payment to you. Of course,
if selling on an acceptance L/C, the bank will accept your drafts, and you will receive
payment at maturity of the draft.
General South African Customs requirements for exports

The Customs Administration, by means of the Customs clearance process, determines
whether or not goods are permitted exit from the importing country and where relevant,
what duties or taxes are payable on those goods. If the goods in question have restrictions
attached to it for example needs an export permit then it is the customs responsibility to
check such a permit.
The Customs Declaration form DA550

As an exporter, you must present a detailed Customs Declaration for all goods leaving the
Customs territory of South Africa. Each product should be classified according to the
South African customs tariff code. The South African bill of entry exports is also known as
the DA550. The important part of this form is the description of goods and tariff. The
description is provided by the HS system and a tariff number entered. Customs is
concerned with what products are being exported, the quantities and FOB values and if
all applicable export regulations are met. The DA550 is usually completed by the freight
forwarder on behalf of the exporter. It is best to use these specialised services if you are
not familiar with the customs procedures.
Classification of the product

The customs declaration will require that the product is classified according to the tariff
code. This code is internationally applied. It is referred to as the Harmonised Commodity
Description and Coding System (HS). It has made a major contribution to the international
standardisation of the classification of goods. Products are classified on the basis of origin

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(animal, vegetable or mineral); composition (e.g. plastic, steel, rubber, wood); or the
sector in which the product is used or branch of activity concerned. Once classified the
South African tariff book will inform you of the applicable export regulations such as export
permits if required.
VAT and exported services

Exported services are defined as those services supplied by a South African resident to a
non-South African resident within South Africa e.g. repairs to equipment.
Example
A Zimbabwean company sends equipment to South Africa for repair. The equipment is
imported according to the SA Customs requirements for temporary import. The repair
entails affixing of new parts and involves a labour charge. Once the equipment has been
repaired it is returned to Zimbabwe.
VAT is levied by the South African supplier at the standard rate. For repairs on goods
entering South Africa, if the buyer presents a customs stamped VAT 262, the South African
supplier may zero rate the tax invoice which includes the cost of parts and labour.
South African suppliers of services such as consultancy may only zero rate their tax
invoices provided they have obtained clearance from the commissioner to do so. This
clearance will usually be provided on submission of a contract to indicate the relationship
between the consultant and the foreign client.
In the event that the South African supplier invoices at the standard rate, the qualifying
purchaser may claim a refund on departure form a designated commercial port or by
submitting a letter of application to the VRA.

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South African Trade Agreements

A trade agreement is any contractual arrangement between states concerning their
trade relationships.
Trade agreements may be bilateral or multilateral—that is, between two states or more
than two states.
For most countries, international trade is regulated by unilateral barriers of several types,
including tariffs, nontariff barriers, and outright prohibitions. Trade agreements are one
way to reduce these barriers, thereby opening all parties to the benefits of increased
trade.
We can therefore say that a trade agreement is an agreement between two states
regarding imports and exports between the two countries and will include topics such as:
 Documents required, e.g. declaration of origin, health certificates, etc.
 Tariff imposed
 Preferred imports and exports
 Banned imports and exports
South Africa has signed many agreements with its trading partners in the past few years,
and the country is the beneficiary of a number of trade arrangements – among them the
African Growth and Opportunity Act and the Generalised System of Preferences. South
Africa has also concluded agreements with the European Union, the Southern African
Development Community and Zimbabwe.
 The African Growth and Opportunity Act (AGOA)

 Trade Agreement between the European Union (EU) and South Africa
 The Southern African Development Community (SADC) Trade Agreement
 The Generalised System of Preferences
 Trade Agreement between Zimbabwe and South Africa

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 Trade Agreement between Southern African Customs Union (SACU) and European
Free Trade Association (EFTA) states
 Rules of Origin Guides / Trade Agreements
 Approved Exporter ( SAEU, SACU EFTA)
South Africa and the EU (European Union)

South Africa is the EU's largest trading partner in Africa. Although it is a member of the ACP
(Africa, Caribbean, Pacific) group of countries it is by far the strongest of sub-Saharan
Africa's economies, and has an FTA (Free Trade Agreement)with the EU.
South Africa's exports to the EU are growing and the composition of those exports is
becoming more diverse. South Africa is gradually moving from mainly commodity-based
products to a more diversified export profile that includes manufactured products.
South Africa is Europe's largest trading partner in Africa.
The treaty consists of three areas of agreement.
 First of all, it includes a free trade agreement between the EU and South Africa.
 Secondly, it includes development aid.
 Thirdly, it includes several areas of cooperation, such as economic and social
cooperation
Trade in goods
 EU good exports to South Africa 2008: €20,215 million
 EU goods imports from South Africa 2008: €22,157 million
South Africa's primary exports to the EU are coal (14%), diamonds (14%) and mechanical
machinery (11%). EU exports to South Africa are dominated by mechanical machinery
(25%), vehicles (16%) and electrical machinery (13%).
Trade in services
 EU services exports to South Africa 2007: €5,704 million
 EU services imports from South Africa 2007: €4,321 million

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Foreign Direct Investment
 EU investment flows to South Africa 2007: €3.5 billion
 South Africa investment flows to EU 2007: €2.6 billion
 EU investment stocks in South Africa 2007: €44 billion
 South Africa investment stocks in EU 2007: €7.6 billion
The EU-South Africa FTA

South Africa's trade relations and development co-operation with the European Union
(EU) are governed by the Trade Development and Co-operation Agreement (TDCA) ,
which was signed in Pretoria on 11 October 1999.
The TDCA aims, among other things, to establish a free trade area over a 12 year period
covering 90% of bilateral trade. The implementation of this agreement is overseen by the
Joint Co-operation Council which also functions as a forum for overall dialogue between
the EU and South Africa. The most recent meeting was the 9th Joint Cooperation Council
held in Cape Town on 3-4 November 2008.
Under the TDCA, South Africa has seen its exports to the EU rise from around €15.8 billion in
2004 to almost €22.2 billion in 2008. Total trade volumes have risen by a third since 2004
(from around €31.8 billion in 2004 to almost €42.4 billion in 2008).
South Africa and the ACP

South Africa, while part of the ACP group of countries, was not party to the same
preferential trade arrangements granted to the ACP under the Cotonou Agreement
(2000).
For the Economic Partnership Agreements (EPAs) which are the trade pillar of the Cotonou
Agreement, South Africa joined the negotiations with the Southern African Development
Community or SADC EPA group in February 2007. While 5 of the 7 countries in the SADC
Group have initialled and are close to signing an interim or "stepping stone" EPA, South
Africa has opted not to join at this stage as its trade relations with the EU are governed by

161
the TDCA. However, it has stated that it is in favour of joining a full EPA in the future and will
continue to participate in negotiations with the goal of increasing regional integration and
boosting competitiveness of the SADC economies.
While a comparatively developed country, there are large parts of the population who
live in poverty. The EU is by far South Africa’s most important development partner,
providing 70% of all external assistance funds.
Trade, Development and Cooperation Agreement (TDCA)

The European Union and South Africa have concluded a bilateral agreement covering
trade relations, development cooperation, economic cooperation and numerous other
fields such as socio-cultural cooperation and political dialogue.
Act
Council Decision 2004/441/EC of 26 April 2004 concerning the conclusion of the Trade,
Development and Cooperation Agreement between the European Community and its
Member States, on the one part, and the Republic of South Africa, on the other part.
Summary
The European Union (EU) and South Africa have concluded an agreement on trade,
development and cooperation (TDCA), designed to strengthen cooperation in various
fields.
This Agreement pursues several objectives: strengthening dialogue between the parties,
supporting South Africa in its economic and social transition process, promoting regional
cooperation and the country's economic integration in southern Africa and in the world
economy, and expanding and liberalising trade in goods, services and capital between
the parties.
Based on respect for democratic principles, human rights and the rule of law, the
Agreement establishes a regular political dialogue on subjects of common interest, both
at bilateral and regional level (within the framework of the EU's dialogue with the countries

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of southern Africa and with the group of the African, Caribbean and Pacific (ACP)
countries).
The duration of the Agreement is unspecified, but provision is made for its revision within
five years of the date of its entry into force in order to consider possible amendments.
The Agreement covers a number of areas and includes a future developments clause
making it possible to widen the field of cooperation.
Trade
The TDCA establishes preferential trade arrangements between the EU and South Africa,
with the progressive introduction of a Free Trade Area (FTA). The EU is South Africa’s main
trading and investment partner. The FTA aims to ensure better access to the Community
market for South Africa and access to the South African market for the EU. As a result, it
plays an important role in South Africa's integration into the world economy. The
Agreement covers around 90% of current bilateral trade between the two parties.
The Agreement provides for the liberalisation of 95% of the EU's imports from South Africa
within ten years, and 86% of South Africa's imports from the EU in twelve years. In order to
protect the vulnerable sectors of both parties, certain products are excluded from the FTA
and others have been only partially liberalised. For the EU, these are mainly agricultural
products, while for South Africa, they are industrial products, in particular certain motor
vehicle products and certain textile and clothing products. However, since December
2006 there has been provision for a strengthening of trade liberalisation in the motor
vehicle sector.
The Agreement sets out detailed rules of origin in order to ensure that products benefiting
from the preferential arrangements come only from South Africa or the EU. To take
account of modern international production processes, special provisions make the rules
of origin more flexible.
South Africa and the EU may implement safeguard measures when an imported product
threatens to cause serious injury to the national industry. The Agreement also allows South
Africa to adopt transitional safeguard measures (for example, an increase or

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reintroduction of customs duties). In addition, similar measures make it possible to protect

the economies of members of the Central African Customs Union and the outermost
regions of the EU (such as Reunion).
The Agreement includes provisions aimed at avoiding abuse by firms with a dominant
position on the market and thus ensuring free competition among the companies from
the EU and South Africa. Cooperation takes place within the framework of consultations
between the competent authorities. In addition, the EU provides technical assistance to
help South Africa restructure its competition laws. The Agreement also recognises the
need to provide adequate protection for intellectual property and provides for urgent
consultations, where necessary, and technical assistance for South Africa.
Lastly, the TDCA provides for close cooperation in a wide range of fields linked to trade,
including customs services, the free movement of services and capital, and technical
obstacles such as certification and standardisation.
Development cooperation
EU development aid for South Africa is mainly implemented from the Community budget
through the financial instrument for development cooperation (DCI). For the period 2007–
13, the DCI has a budget of €980 million for South Africa.
The indicative programme for cooperation with South Africa for 2007–13 indicates two
areas on which attention should be focused: job creation in the informal economy sector
and integration into the formal economy, and capacity-building for the provision of basic
social-security services and social cohesion.
As with other development cooperation agreements, decentralised cooperation is a key

element of assistance, thus requiring a high degree of civil society involvement in the
development process.
Economic cooperation
Both parties are stepping up their economic cooperation in many fields such as industry (in
order to facilitate the restructuring of South African industry), the information society, the

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creation and development of small and medium-sized enterprises, transport and energy.
Cooperation in this field should also support sustainable development in their economies
and protect the environment.
Other aspects
The provisions of the Agreement cover cooperation in fields as diverse as:
 social cooperation, based on dialogue covering a number of aspects, such as

freedom of association, workers' rights, children's rights, gender equality and violence
against women;
 cooperation to protect the environment, particularly as regards climate change;
 cultural cooperation;
 cooperation in the fight against drugs and money laundering;
 cooperation in the field of health and, in particular, the fight against AIDS.
Lastly, the TDCA contains some institutional provisions. It creates a Cooperation Council to
ensure the smooth operation of the Agreement. And it provides for regular contact
between the parties; for example, between their Parliaments and between the EU's
Economic and Social Committee and its South-African counterpart, the National
Economic Development and Labour Council.
Background
Signed on 11 October 1999 in Pretoria, the TDCA entered fully into force on 1 May 2004.
However, some provisions which fall within Community competence have been applied
since 1 January 2000.
The Agreement is supplemented by three additional agreements: the Science and

Technology Agreement, and the Wine and Spirits Agreements. The Fisheries Agreement
envisaged under the TDCA has not been concluded. South Africa also has qualified
membership of the Cotonou Agreement, which governs the relations between the EU and
ACP countries.

165
References
Deadline for
Date of entry into
Act transposition in the Official Journal
force
Member States
Decision
2004/441/EC
26.04.2004 - OJ L 127, 29.04.2004
[adoption: assent
AVC/1999/0112]
Trade,
Development and
01.01.2004 - OJ L 311, 04.12.1999
Cooperation
Agreement (TDCA)
Deadline for
Date of entry into
Amending Act(s) transposition in the Official Journal
force
Member States
Decision
21.12.2005 - OJ L 57, 28.02.2006
2006/166/EC
Related acts
Proposal for a Council Decision of 4 February 2008 on the signing of an Agreement
between the European Community and its Member States, of the one part, and the
Republic of South Africa, of the other part, amending the Agreement on Trade,
Development and Cooperation.
The Commission proposes an enlargement of the scope of cooperation provided for in the
TDC agreement. The new areas of cooperation should contribute in particular to the
effective implementation of the socio-economic programme of the African Union. The
partners commit to pursue their efforts to achieve the Millennium Development Goals

166
(MDGs). Cooperation should extend to energy policy in order to ensure stability of prices,
security and diversification of sources of supply, the development of science, technologies
and the information society, and the sectors of beneficiation of minerals, transport and
satellite navigation systems.
The agreement includes provisions on international justice and the International Criminal
Court. It refers to the application of international instruments for disarmament and the
non-proliferation of weapons of mass destruction. It also provides for stepping up
cooperation in the fight against terrorism and its financing, organised crime, the
prevention of mercenary activities and the eradication of small arms trading. It provides
for in-depth political dialogue on the question of migration, so as to reduce illegal
immigration, ensure full respect of human rights and the elimination of discrimination.
Discussions on trade and trade-related issues will take place in the context of the
negotiations on an Economic Partnership Agreement (EPA).
Communication of 28 June 2006 from the Commission to the Council and to the
Representatives of the Governments of the Member States meeting within the Council to
give orientation to the Commission for the revision of the Agreement on Trade,
Development and Cooperation between the European Community and its Member
States, of the one part, and the Republic of South Africa, of the other part
This communication, adopted parallel to that proposing a strategic partnership between
the EU and South Africa, identifies which parts of the TDCA should be examined with a
view to possible amendments. Following this communication, in November 2006 the
Council adopted the negotiating mandate and the EU-South Africa Cooperation Council
of 14 November 2006 agreed to launching the negotiations to revise the TDCA. These
negotiations were concluded on 10 October 2007.
Council Regulation (EC) No1747/2000 of 7 August 2000 amending Regulation (EC) No

2793/1999 on certain procedures for applying the Trade, Development and Cooperation
Agreement between the European Community and the Republic of South Africa [Official
Journal L 200, 08.08.2000].

167
The Regulation amends the annex to Regulation (EC) No 2793/1999 to bring it into line with
Commission Regulation (EC) No 2204/1999 on the tariff and statistical nomenclature and
on the Common Customs Tariff. In this respect, it amends the codes of the combined
nomenclature of the annex in question.
Council Regulation (EC) No 2793/1999 of 17 December 1999 on certain procedures for
applying the Trade, Development and Cooperation Agreement between the European
Community and the Republic of South Africa [Official Journal L 337, 30.12.1999].
The Regulation establishes, in particular, the arrangements for the implementation of the
Agreement's trade provisions, for example, the criteria for the calculation of customs
duties, etc. The Commission is responsible for the implementation of the Regulation and is
assisted by a Customs Code Committee.
Benefits and opportunities

SA faces duty-free market access on exportation of groundnut oil, onions,
unmanufactured tobacco, cigars, cheroots, cigarillos and cigarettes and all other
products included under List 1 of the EU tariff liberalisation schedule of the agreement.
Many other products such as cabbages, onions, lettuce, apricots, grapes, cherries, meat
of sheep or goats, and meat of pork and tomatoes are subjected to preferential access
into EU markets. These products are included among other products listed in lists 2, 3 and 4
of the agreement. The products will face zero duties in 2010. As of January 2010 certain
quotas such as for proteas, sparkling wine and other cheeses will fall away. These products
will enter the EU market duty-freequota-free (DFQF).
Some processed agriculture products such as chocolate, sugar confectionary, bread,

yoghurt, pasta, ice cream and other edible ice are subject to partial liberalisation. They
fall under List 5 of the agreement.
The following products available in List 6 of the agreement are subjected to tariff quotas,
i.e. cut flowers, strawberries, canned pears, apricots and peaches, fruit juices, sparkling
wine and other wine. Tariff preferences for these products are granted on limited
quantities.

168
Export permits
Tariff preferences on limited quantities of selected products in the form of tariff quotas
apply to certain products captured in the agreement. Most of these products are
available in List 6 of the agreement. Exporters should apply for export permits in order to
use this opportunity. Export permits are normally allocated on the basis of the following
categories:
 70 % to historical exporters (in proportion to the average quantity of the product

concerned, exported by the applicant during the period stipulated for the product)
 10 % to BEE exporters (on an equal basis or as a historical exporter, whichever will

enhance government policy for BEE development)
 20 % to SMME and new exporters’ category (on an equal basis).
The procedures for the application, administration and allocation of export permits as well
as detailed lists of relevant products are published in the Government Gazette and are
also made available on the website of the Department of Agriculture, Forestry and
Fisheries. Costs for export permits increase annually and are also available on the website.
Requirements to qualify for EU preferences

It is the responsibility of the exporter and potential exporters to comply with:
 The sanitary and phytosanitary (SPS) regulations and other technical requirements as
stipulated by the EC.
 The rules of origin (RoO) that form part of the TDCA. Protocol 1 on the RoO can be
obtained from the website of the South African Revenue Services,
http://www.sars.gov.za, by means of the following links: Customs and Excise » Trade
Data »
 Trade agreements » Trade Agreement between the European
 Union (EU) and South Africa » Protocol 1 concerning the definition of the concept of
originating products and methods of administrative cooperation.
 Note: The EUR 1 form must accompany each consignment to be exported in terms
of the TDCA. It is obtainable from the applicant’s local SARS office.

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The African Growth and opportunity Act (AGOA)

Following are extracts from this Act
SEC. 103. Statement Of Policy.

Congress supports—
(1) encouraging increased trade and investment between the United States and sub-
Saharan Africa;
(2) reducing tariff and nontariff barriers and other obstacles to sub-Saharan African and
United States trade;
(3) expanding United States assistance to sub-Saharan Africa’s regional integration efforts;
(4) negotiating reciprocal and mutually beneficial trade agreements, including the
possibility of establishing free trade areas that serve the interests of both the United States
and the countries of sub-Saharan Africa;
(5) focusing on countries committed to the rule of law, economic reform, and the
eradication of poverty;
(6) strengthening and expanding the private sector in sub-Saharan Africa, especially
enterprises owned by women and small businesses;
(7) facilitating the development of civil societies and political freedom in sub-Saharan
Africa;
(8) establishing a United States-Sub-Saharan Africa Trade and Economic Cooperation
Forum; and
(9) the accession of the countries in sub-Saharan Africa to the Organization for Economic
Cooperation and Development (OECD) Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions.
SEC. 104. Eligibility Requirements.

(a) IN GENERAL.—The President is authorized to designate a sub-Saharan African country
as an eligible sub-Saharan African country if the President determines that the country—
(1) has established, or is making continual progress toward establishing—
(A) a market-based economy that protects private property rights,
incorporates an open rules-based trading system, and minimizes

170
government interference in the economy through measures such as price

controls, subsidies, and government ownership of economic assets;
(B) the rule of law, political pluralism, and the right to due process, a fair trial,
and equal protection under the law;
(C) the elimination of barriers to United States trade and investment,
including by—
(i) the provision of national treatment and measures to create an
environment conducive to domestic and foreign investment;
(ii) the protection of intellectual property; and
(iii) the resolution of bilateral trade and investment disputes;
(D) economic policies to reduce poverty, increase the availability of health
care and educational opportunities, expand physical infrastructure, promote
the development of private enterprise, and encourage the formation of
capital markets through micro-credit or other programs;
(E) a system to combat corruption and bribery, such as signing and
implementing the Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions; and
(F) protection of internationally recognized worker rights, including the right
of association, the right to organize and bargain collectively, a prohibition
on the use of any form of forced or compulsory labor, a minimum age for the
employment of children, and acceptable conditions of work with respect to
minimum wages, hours of work, and occupational safety and health;
(2) does not engage in activities that undermine United States national security or
foreign policy interests; and
(3) does not engage in gross violations of internationally recognized human rights or
provide support for acts of international terrorism and cooperates in international
efforts to eliminate human rights violations and terrorist activities.
(b) CONTINUING COMPLIANCE.—If the President determines that an eligible sub-Saharan
African country is not making continual progress in meeting the requirements described in
subsection (a)(1), the President shall terminate the designation of the country made
pursuant to subsection (a).

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Subtitle B—Trade Benefits

SEC. 111. Eligibility For Certain Benefits.
(a) IN GENERAL.—Title V of the Trade Act of 1974 is amended by inserting after section 506
the following new section:
SEC. 506A. DESIGNATION OF SUB-SAHARAN AFRICAN COUNTRIES FOR CERTAIN BENEFITS.
(a) AUTHORITY TO DESIGNATE.—
(1) IN GENERAL.—Notwithstanding any other provision of law, the President is
authorized to designate a country listed in section 107 of the African Growth and
Opportunity Act as a beneficiary sub-Saharan African country eligible for the
benefits described in subsection (b)—
(A) if the President determines that the country meets the eligibility
requirements set forth in section 104 of that Act, as such requirements are in
effect on the date of the enactment of that Act; and ‘‘
(B) subject to the authority granted to the President under subsections (a),
(d), and (e) of section 502, if the country otherwise meets the eligibility
criteria set forth in section 502.
(2) MONITORING AND REVIEW OF CERTAIN COUNTRIES.—The President shall monitor,
review, and report to Congress annually on the progress of each country listed in
section 107 of the African Growth and Opportunity Act in meeting the requirements
described in paragraph (1) in order to determine the current or potential eligibility
of each country to be designated as a beneficiary sub-Saharan African country for
purposes of this section. The President’s determinations, and explanations of such
determinations, with specific analysis of the eligibility requirements described in
paragraph (1)(A), shall be included in the annual report required by section 106 of
the African Growth and Opportunity Act.
(3) CONTINUING COMPLIANCE.—If the President determines that a beneficiary sub-
Saharan African country is not making continual progress in meeting the
requirements described in paragraph (1), the President shall terminate the
designation of that country as a beneficiary sub-Saharan African country for
purposes of this section, effective on January 1 of the year following the year in
which such determination is made.
(b) PREFERENTIAL TARIFF TREATMENT FOR CERTAIN ARTICLES.— H. R. 434—8

172
(1) IN GENERAL.—The President may provide duty-free treatment for any article
described in section 503(b)(1)(B) through (G) that is the growth, product, or
manufacture of a beneficiary sub-Saharan African country described in subsection
(a), if, after receiving the advice of the International Trade Commission in
accordance with section 503(e), the President determines that such article is not
import-sensitive in the context of imports from beneficiary sub-Saharan African
countries.
(2) RULES OF ORIGIN.—The duty-free treatment provided under paragraph (1) shall
apply to any article described in that paragraph that meets the requirements of
section 503(a)(2), except that—
(A) if the cost or value of materials produced in the customs territory of the
United States is included with respect to that article, an amount not to
exceed 15 percent of the appraised value of the article at the time it is
entered that is attributed to such United States cost or value may be applied
toward determining the percentage referred to in subparagraph (A) of
section 503(a)(2); and
(B) the cost or value of the materials included with respect to that article
that are produced in one or more beneficiary sub-Saharan African countries
shall be applied in determining such percentage.
(c) BENEFICIARY SUB-SAHARAN AFRICAN COUNTRIES, ETC.—For purposes of this title, the
terms ‘beneficiary sub-Saharan African country’ and ‘beneficiary sub-Saharan African
countries’ mean a country or countries listed in section 107 of the African Growth and
Opportunity Act that the President has determined is eligible under subsection (a) of this
section.’’.
SEC. 113. Protections Against Transshipment.

(b) CUSTOMS PROCEDURES AND ENFORCEMENT.—
(1) IN GENERAL.—
(A) REGULATIONS.—Any importer that claims preferential treatment under
section 112 shall comply with customs procedures similar in all material
respects to the requirements of Article 502(1) of the NAFTA as implemented

173
pursuant to United States law, in accordance with regulations promulgated

by the Secretary of the Treasury.
(B) DETERMINATION.—
(i) IN GENERAL.—In order to qualify for the preferential treatment
under section 112 and for a Certificate of Origin to be valid with
respect to any article for which such treatment is claimed, there shall
be in effect a determination by the President that each country
described in clause (ii)—
(I) has implemented and follows; or
(II) is making substantial progress toward implementing and
following, procedures and requirements similar in all material
respects to the relevant procedures and requirements under
chapter 5 of the NAFTA.
(ii) COUNTRY DESCRIBED.—A country is described in this clause if it is a
beneficiary sub-Saharan African country—
(I) from which the article is exported; or
(II) in which materials used in the production of the article
originate or in which the article or such materials, undergo
production that contributes to a claim that the article is eligible
for preferential treatment.
(2) CERTIFICATE OF ORIGIN.—The Certificate of Origin that otherwise would be
required pursuant to the provisions of paragraph (1) shall not be required in the
case of an article imported under section 112 if such Certificate of Origin would not
be required under Article 503 of the NAFTA (as implemented pursuant to United
States law), if the article were imported from Mexico.

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Import Export Procedures

Imports
What are South Africa’s import tariffs?
South Africa’s import tariffs generally range from 0-45% with some exception. South Africa
adheres to the Harmonised Tariff System, and tariffs and import surcharges are assessed on
the customs value (f.o.b.).
Are other taxes assessed on imports?

South Africa levies an import surcharge which is on the customs value (f.o.b.) of selected
products. Surcharge rates are as follows:
 0% - agricultural products and implements, capital and intermediate goods,

manufacturing inputs, essential foods.
 15% - aircraft, vehicles, earthmoving equipment, computer software, appliances,

etc.
 40% - luxury consumer goods, for example, televisions, tape recorders, video
machines, antiques, jewellery, etc.
Is an import permit required for my product?

Some goods entering South Africa require import permits - like used equipment, consumer
goods (foodstuffs, clothing, fabrics, footwear, and books), wood, paper products, motor
and aviation fuels, refined petroleum products and other industrial products, and
materials imported as original equipment for the manufacture of motor vehicles.
Do I need a Certificate of Origin to export my product to South Africa?

The South African Declaration (or certificate) of Origin, Form DA-59, certifying the country
of origin, description of goods, weight, etc.., is required for shipments of stainless steel
tableware, kitchen items or other household articles, and mugs and cups of a diameter
not exceeding 70 mm; iron or steel except stainless steel, not enamelled; motor vehicle air
filters, motorcycle oil or petrol filters, and parts for motor vehicle filters; and reception
apparatus for radio telephone or radio broadcasting apparatus. South African Customs
will notify the importer if a Form DA-59 is required and the importer will notify the exporter.

175
When the form is required, exporters or suppliers must provide at least one original signed
copy attached to the original commercial invoice. A chamber of commerce certification
or a customs stamp are not required.
Are other basic documents required?

Basic documents required for shipments to South Africa include:
 A commercial invoice which shows the price charged to the importer in addition to
the cost of placing goods on board ship for export;
 Bill of Lading;
 insurance documents; and
 Packing list.
Other special documentation may be required by the importer. At least three copies of
the invoice should go forward under separate cover to the consignee prior to the arrival
of the goods.
Exports
What must be declared for export?
As a general rule all goods leaving South Africa must be declared before exportation. The
only exemption is personal goods carried by passengers leaving South Africa as
accompanied baggage, provided such goods are not to be used for commercial
purposes.
When must goods be declared?

Goods to be exported must be declared to Customs before exportation takes place.
Customs will deem goods to be exported:
 In the case of goods to be exported in a ship, at the time when such goods are
delivered to the port authority, a depot operator, the master of the ship concerned
or a container operator

176
 In the case of goods to be exported in an aircraft, at the time when such goods are
delivered to the pilot of the aircraft concerned or are brought within the control area
of the airport concerned
 In the case of goods to be exported in a train, at the time when such goods are
delivered to the railway authority
 In the case of goods to be exported overland in a vehicle, at the time when such
goods are loaded on the vehicle concerned.
Who must declare goods destined for export?

All persons who export or intend to export commercial goods (in bulk, in containers or as
break-bulk) from South Africa must declare such goods before export. This also holds true
where goods for commercial (business) purposes are exported as accompanied
baggage.
How must goods be declared for export?

All goods destined to be exported must be declared on the form (DA 550 referenced to
SAD) DA550 - Bill of Entry Export Direct of CCA7/SAD500. A completion manual to assist
clients...
What supporting documents are required?

The information required for the completion of the export declaration can be obtained
from a number of documents. Examples of these documents are:
 transport documents (i.e. bill of lading, air waybill, road manifest, etc.)
 invoices
 any contracts if applicable
 exchange control forms
 permits/certificates
When submitting manual declarations all the documentation must accompany the
declaration. In other instances these documents must be produced to Customs upon
request.

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What methods are available for submitting the declaration?

Three methods are available:
Manual Entry
The bill of entry export is submitted in manual form to your nearest Customs office along
with supporting documentation. The bill of entry will then be captured by Customs staff
onto the export system.
Computer Disk
The Bill of entry and supporting documentation
together with a computer disk containing an
electronic copy of the entry is submitted to a
Customs office. The bill of entry will then be
captured by Customs staff on to the expert system.
Parties using this facility make use of a programme
specifically written to capture the details onto the
disk. More information on the specifications of this
facility....
Electronic Data Interchange (EDI)

EDI is the electronic communication of structured business data between the computer
system of trading partners, for automated processing of bills of entry. This means that a
client can submit the declaration to customs via electronic communication. This is the
simplest and quickest process in which export declarations are submitted to Customs
electronically.
What happens next?

Customs utilises risk profiling to interrogate export bills of entry lodged. This may result in the
export shipment being detained pending the production of additional documentation to
verify the classification or a call for the physical examination of the goods. Goods found to

178
be in order will be released as entered. Export control permits/certificates will be

requested, where applicable.
What if you intend to re-import the goods?

Temporary exports must be registered for re-importation before export occurs to ensure
that duties and taxes which might become payable will not be called upon when re-
imported.
Goods exported on a temporary basis and intended for re-importation must be declared
on a DA65 declaration or Passenger Declaration form for re-importation before export.
What procedures are there for exporting prohibited and restricted goods?
Exporters must familiarise themselves with export controls measures in place before
attempting to physically export any goods. The commodity type of the goods exported
might be subject to export control in the form of a permit/certificate or export
examination.
These requirements are mostly imposed by other government departments or institutions

for which SARS Customs performs the function of ensuring compliance on an agency
basis, or even by the importing country.
 Goods exported on a permanent basis upon which foreign currency will be

repatriated to South Africa of which the value exceeds R50 000 must produce a F178
Exchange Control Declaration.
 Goods exported on a temporary basis and intended for re-importation must be

declared on a DA65 Declaration or Passenger Declaration Form for re-importation
before export
Goods exported temporarily of which the value exceeds R50 000 must be
accompanied by a NEP (No Exchange Proceed) form. The NEP must be attested by
a financial institution before submitting to Customs together with the export
clearance
- All exchange control forms (the F178 and NEP) are only required for exports to
countries not forming part of the Common Monetary Area (CMA). The CMA

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comprises South Africa, Lesotho, Swaziland and Namibia

- The type of commodity may attract additional export controls such as certificates
or permits that may be required.
What about VAT payments on exported goods?

Exporters are assisted by means of the VAT Export Incentive Scheme which in essence
permits the exporter to zero-rate VAT on exports regarded as a direct export.
 Customs Duties and Levies
 Customs Procedures
 Trade
 Household Effects
 Motor vehicles
 Boats and aircrafts
Who must register with Customs as an Exporter?

All persons who will be exporting commercial goods from South Africa must register with
SARS. More information on exemptions from this requirement and how to register.....
How to apply?
Collect forms from any Customs branch office or complete the forms on the SARS website
www.sars.gov.za before printing them.
Which forms to complete?
 DA185 - Application form: Registration/Licensing of Customs and Excise Clients
 DA 185.4A2 - Registration Client Type 4A2 - Exporter
In addition, please complete the following sections where applicable:
 DA46A1.02 Exporter’s application for registration for the purposes of the AGOA
 DA49A.02 Application for approved exporter
 DA46A2.01 Exporter's Application for Registration for the purposes of the GSP
 DA46A2.02 Producer's Application for Registration for the purposes of the GSP

180
Where to submit the forms?

Application must be submitted to Controller/Branch Manager having jurisdiction
Where an applicant contemplates operating at more than one place of entry a separate
application must be filed with the relevant Controller/Branch Manager in that area.
How long does it take for approval?

The approval takes 10 working days for the whole processes then a confirmation letter will
be issued
Activity 4
MODES OF TRANSPORT
Transportation System
Transport modes are the means by which people and freight achieve mobility. They fall
into one of three basic types, depending on over what surface they travel – land (road,
rail and pipelines), water (shipping), and air.
Road Freight Transport

Today, most consumer goods are carried by
motor carrier. Road freight transport has, in the
last couple of years, become the dominant form
of freight transport, especially since the
deregulation of the of the industry in 1993.

181
Motor carriers are more flexible and versatile than other transport modes, due to a good
road network. Motor carriers can offer a point-to-point service from to almost any
destination. They can also transport products from small to large sizes and weights over
any distance. Most products can be carried by road transport, enabling them to offer the
customer fast and reliable service with little loss or damage in transit.
Road transport competes with air for small shipments and with rail for larger shipments.
The characteristics of road transport, using motor carriers, enable companies to comply
with the service requirements of customers, because the company can now provide a
fast and efficient service.
The following economic sectors use a lot of road transport, listed in order of importance:
 Manufacturing
 Agriculture, hunting, forestry and fishery
 Mining and quarrying
 Wholesale, retail, catering and accommodation services
Products carried by road transport are, listed in order of importance:
 General goods
 Bricks, stone, slate, soil and sand
 Cement, chemical products, milk, etc.
 Furniture and household effects
 Fruit, vegetables, fish, frozen foods and other perishable products
Rail freight transport

In the past, most freight was shipped by rail. This has now changed and motor carriers
now ship most of the freight in South Africa. The rail network is also not as extensive as the
road network in most countries. Rail freight has also lost some traffic to water and pipeline
carriers.

182
Disadvantages of rail freight transport
 Railroads provide terminal-to-terminal service rather than point-to-point service,

unless the shipper has a rail siding at their facility.
 Trains travel on timetable schedules and departures are less frequent than road
transport, meaning that rail freight transport has disadvantages in terms of time and
frequency of service.
 Railroad lines use cars and equipment that at times may not be located where most
needed.
 Railcars may be unavailable because they are being loaded, unloaded, moved
within railroad sorting yards or undergoing repairs. It can even happen that some
cars are standing idle or lost within the rail network.
Many of these disadvantages have been overcome by:
 Trailer-on-flatcar or container-on-flatcar service. This service offers the economy of

rail combined with the flexibility of trucking.
 Computer routing and scheduling
 Upgrading of equipment terminals and roadbeds
 There have been improvements in the identification system used for railcars
 Shippers can now own or lease their own rail cars
 Rail freight traffic has also introduced dedicated through-train service between big
metropolitan areas
Advantages of rail freight
 The biggest advantage of rail transport is the cost calculated by weight– it generally
costs less than air and motor transport per kg shipped.
 We have a well-developed rail network, linking ports with the economic markets of
the ports, as well as all the major metropolitan areas.
 The rail network also covers the Southern African region as far as the Democratic
Republic of the Congo.

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 There is no need for transhipment, because the same rail gauge is used throughout
the region.
 Rail is used for transporting goods of a low value , such as coal and iron ore, over a
long distance. Rail trucks can carry 40 tons and an entire train can transport as much
as 15000 tons of goods at relatively high speeds over long distances.
 Rail transport is well suited for transporting bulk products and containerised goods
Air Freight Transport

OR Tambo International Airport has the
biggest freight handling section and
most of the airfreight in South Africa is
moved through this airport. It is located
close to road and rail links.
Disadvantages of air freight
 It costs more to ship goods via airfreight
 Although the terminal-to-terminal transit time is shorter than with any other mode of
freight carrying, the total transit time can be longer than, say road transport, due to
terminal and delivery delays.
 Service is generally limited to the movement of goods between major points.
Advantages of air freight
 When an item must be delivered quickly over a long distance, air freight offers the
shortest transit time.
 High value items are sent air freight, since the value of the article offsets the high
transport rate
Maritime Freight Transport

The port infrastructure in South Africa is managed by Portnet, a division of Transnet. There
are seven major ports:

184
 Richards Bay: used mainly for

bulk exports of coal
 Durban
 Port Elizabeth
 East London
 Mossel Bay
 Cape Town
 Saldanha Bay: used mainly for bulk exports of iron ore products
Cape Town and Durban are the busiest and handle imports and exports of containerised
commodities.
Disadvantages of maritime freight transport
 Shipping depends on rail and road transport to take goods to and from the harbours.
 Shipping by water is not fast
 Water carriers can only transport over water, so the availability of lakes, rivers and
affects the speed, efficiency and effectiveness of transporting freight.
Advantages of maritime freight transport
 Water carriage is ideally suited for transporting heavy, bulky and low-value-per-unit
goods that can be loaded and unloaded by mechanical means
 Water carriage is also suitable for transporting goods where speed is not very
important
 Goods that do not lend themselves to damage and theft (for example coal and iron
ore) can be transported effectively by water.
 The cost of shipping low-value commodities of high bulk is the lowest when shipped
by water

185
Pipeline
We have about 3000km of pipelines in
South Africa. All pipelines are owned by
Petronet, a division of Transnet. The
products that are moved include:
 Transport gas
 Crude oil
 Petroleum products
 Petrol and diesel
 Water
 Chemicals
Disadvantages
Pipelines can only carry certain products, usually in liquid form. Examples of products that
are transported by pipelines are natural gas, crude oil, petroleum products, water,
chemicals and slurry products.
Advantages of pipelines
 Pipelines offer a high level of dependability at a low cost
 Products can be delivered on time as the flow of the products are controlled and
monitored by computer
 The climate does not have much effect on the movement of products
 Pipelines are not labour intensive
 Loss and damage due to leaks or breaks are rare
Intermodal transportation
This is when more than one mode of transport is combined in order to benefit from the
advantages of each mode. For example, combining road, rail and airfreight.
Containerisation makes it possible to combine maritime and land transportation modes.

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International Transportation
The growth of the amount of freight being traded as well as a great variety of origins and
destinations emphasises the importance of international transportation as a fundamental
element supporting the global economy.
Economic development in Pacific Asia and in China in particular has been the dominant
factor behind the growth of international transportation in recent years. Since the trading
distances involved are often considerable, this has resulted in increasing demands on the
maritime shipping industry and on port activities. As its industrial and manufacturing
activities develop, China is importing growing quantities of raw materials and energy and
exporting growing quantities of manufactured goods. The outcome has been a surge in
demands for long distance international transportation. The ports in the Pearl River delta in
Guangdong province now handle almost as many containers as all the ports in the United
States combined.
International transportation systems have been under increasing pressures to support

additional demands in freights volume and the distance at which this freight is being
carried.
This could not have occurred without considerable technical improvements permitting to
transport larger quantities of passengers and freight, and this more quickly and more
efficiently. Since containers and their intermodal transport systems improve the efficiency
of global distribution, a growing share of general cargo moving globally is containerised.
Consequently, transportation is often referred to as an enabling factor that is not
necessarily the cause of international trade, but as a condition without which globalisation
could not have occurred. A common development problem is the inability of international
transportation infrastructures to support flows, undermining access to the global market
and the benefits that can be derived from international trade.
International trade requires distribution infrastructures that can support trade between
several partners. Three components of international transportation facilitate trade:

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 Transportation infrastructure. Concerns physical infrastructures such as terminals,

vehicles and networks. Efficiencies or deficiencies in transport infrastructures will
either promote or inhibit international trade.
 Transportation services. Concerns the complex set of services involved in the

international circulation of passengers and freight. It includes activities such as
distribution, logistics, finance, insurance and marketing.
 Transactional environment. Concerns the complex legal, political, financial and

cultural setting in which international transport systems operate. It includes aspects
such as exchange rates, regulations, quotas and tariffs, but also consumer
preferences.
About half of all global trade takes place between locations of more than 3,000 km apart.
Because of this geography, most international freight movements involve several modes
since it is impossible to have a physical continuity in freight flows. Transport chains must
therefore be established to service these flows which reinforce the importance of
intermodal transportation modes and terminals at strategic locations. Among the
numerous transport modes, two are specifically concerned with international trade:
 Ports and maritime shipping. The importance of maritime transportation in global

freight trade in unmistakable, particularly in terms of tonnage as it handles about 90%
of the global trade. Thus, globalisation is the realm of maritime shipping, with
containerised shipping at the forefront of the process. The global maritime transport
system is composed of a series of major gateways granting access to major
production and consumption regions. Between those gateways are major hubs
acting as points of interconnection and transshipment between systems of maritime
circulation.
 Airports and air transport. Although in terms tonnage air transportation carries an
insignificant amount of freight (0.2% of total tonnage) compared with maritime
transportation, its importance in terms of the total value is much more significant; 15%
of the value of global trade. International air freight is about 70 times more valuable
than its maritime counterpart and about 30 times more valuable than freight carried
overland, which is linked with the types of goods it transports (e.g. electronics). The

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location of freight airports correspond to high technology manufacturing clusters as

well as intermediary locations where freight planes are refueled and/or cargo is
transshipped.
Road and railway modes tend to occupy a more marginal portion of international
transportation since they are above all modes for national or regional transport services.
Their importance is focused on their role in the "first and last miles of global distribution.
Freight is mainly brought to port and airport terminals by trucking or rail.
Support Services
Freight forwarding and clearing
Freight forwarder, forwarder, or forwarding agent is a person or company that organises
shipments for individuals or other companies. A freight forwarder may also act as a carrier.
It also happens that a forwarder is not active as a carrier but acts only as an agent, in
other words as a third-party (non-asset-based) logistics provider that dispatches
shipments via asset-based carriers and that books or otherwise arranges space for these
shipments.
Freight forwarders typically arrange cargo movement to an international destination. Also

referred to as international freight forwarders, they have the expertise that allows them to
prepare and process the documentation and perform related activities pertaining to
international shipments.
Some of the typical information reviewed by a freight forwarder include:
 Commercial invoice
 Shipper’s export declaration
 Bill of lading
 Other documents required by the carrier or country of export, import or transhipment

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Much of this information is now processed in a paperless environment.
Functions of Freight Forwarder and Clearing Agent

In industry terms, the “freight forwarder” and “forwarding agent” are one and the same
organisation.
There is, however, a distinction between the freight forwarder and clearing agent: On
imported shipments the freight forwarder is responsible for the activities in the country of
supply.
The clearing agent takes care of the Customs clearance in South Africa. He also arranges
transport from the point of entry to the final point of delivery. The clearing agent may also
be referred to as a “Customs Broker” and “Clearing and Forwarding agent”.
On exported shipments the roles are reversed: The South African clearing agent becomes
the forwarding agent and the overseas forwarder acts as the clearing agent.
Overseas forwarders and local clearing agents work together in providing “exporters” and
“importers” with a “door-to-door” service.
Many international companies have their own offices on South Africa. They do not work
with agents.
The term “freight forwarding” is often used to describe the activities of both forwarder and
clearing agent.

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The Freight Forwarder as a Consultant

As consultants, forwarders can advise and assist exporters in making transport decisions
and keep them informed of procedures, developments and changes.
When arranging international transportation, there are many aspects for an exporter to
take into consideration. Freight forwarders are trained to consult in these matters:
 Type of packaging
 Labelling and marking of packages
 Transport from the supply point to the port of shipment
 Customs documentation and formalities
 Carrier documentation and formalities
 Insurance
 Selection of the mode of carriage
 Selection of carrier
 Freight rates
 Special documentation
 Documentation required in the country of destination
The freight forwarder and documentation

One of the main functions of the freight forwarder is the completion and distribution of the
following documents:
 Master air waybill
 House air waybill
 Ocean bill of lading or sea waybill
 House bill of lading
 Rail consignment note
 Road consignment note
 Manifest
 Customs export bill of entry

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 Bank forms
 Government statistical forms
 Insurance declarations.
Other services include:
 Processing the documents
 Having them signed and accepted
 Submitting them to relevant parties
 Distributing them by post, fax, courier, as instructed.
Forwarders also assist exporters in obtaining other documents such as:
 Certificates of origin
 Phytosanitary certificates
 Health certificates
 Police permits
 Export permits
 CITES permits (Convention for the International
 Trade Endangered Species)
 Consular invoices
 Certified invoices
 Inspection certificates
 Insurance certificates
 Shipper’s declaration for dangerous goods.
The freight Forwarder and procedures

Forwarders have detailed procedural knowledge in international transportation. They also
have access to the people of influence when assistance is required. Important
procedures include:
 Customs

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 Airlines
 Shipping lines
 Groupage operators
 Bankers
 Container depots
 Marine insurance.
The freight forwarder as a booking agent.

Irrespective of the mode of transport, it is necessary to book space with the carrier, as
early as possible to ensure that there are no delays. Information needed for booking
acceptance include:
 Description of goods
 Weight
 Volume or dimensions
 No of parcels/packages
 Ports of shipment and destination
 Exporter’s /shipper’s name.
Exporters can make the bookings themselves, but using a forwarder has an advantage as
the forwarder has knowledge and also influence with the carriers.
The freight forwarder as a transporter

Forwarders generally do not become involved in the physical carriage of goods. Few, if
any, own their own sea going vessels or rail trucks. Most forwarders favour the
appointment of outside truckers for road transport. This is not the case with airfreight.
Many forwarders have commercial vehicles with which they collect and deliver airfreight
consignments.
The freight forwarder as a communicator

Information required by exporters include:
 Confirmation of the cargo booking
 Time and date when empty container will be delivered for loading

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 Name of vessel and estimated date of departure
 Container terminal stack opening and closing dates
 Airline, flight number and date
 Confirmation of shipment
 Dispatch
 Information of delays and problems
 Proof of delivery
The forwarder ensures that all the above information is made available to exporters. Many
forwarders are linked into electronic shipping tracking systems and communicate with
their clients via email, telephone and fax.
The freight forwarder making payments to third parties

Payments made on behalf of clients are called disbursements. These disbursements are
billed and recouped on a forwarder’s invoice. Disbursements include: payment of freight
to shipping lines, airlines, groupage operators and also payments to trucking companies,
railroad companies and container depot operators.
The freight forwarder as a Groupage Operator

Larger freight forwarders operate their own groupage services. Any forwarder can handle
groupage shipments without being in a position to fill a container. This is achieved by co-
loading with groupage operators who have sufficient cargo to fill containers. The
forwarder who co-loads with a groupage operator will issue his own house bill of lading.
One house bill of lading will be issued per shipment. In this way the co-loader / forwarder
retains control over the groupage shipments he hands over.
Ship’s agent
A ship agent is employed to represent the interests of either the ship’s owner, the ship’s
operator, or the cargo’s owner (consignee) while the ship is in port.

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A shipping agent is a person who deals with the transactions of a ship in every port that
the ship visits or docks. In simple terms, it is a shipping agent who with a local expert acts
as a representative of the owner of the ship and carries out all essential duties and
obligations required by the crew of the ship.
Duties towards the ship and cargo

The ship agent arranges on behalf of their client, all documentation and services relevant
to the ship and its cargo. These may include:
 booking the vessel in and out of the port, and arranging the pilot and tug boat
services
 providing information on the crew and any passengers to the department of

immigration and citizenship, including who has visas
 ensuring that the ship’s documentation complies with international regulations as this
will be inspected by Customs when they board the ship
 preparing the quarantine pre-arrival report (QPAR) which provides details on the
crew, the ship’s previous route and any deaths or illnesses which may have occurred
during the voyage
 advising Customs of the ship’s arrival and reporting the cargo on board
 logistics involved with provisions and fuel
 providing the stevedore’s ship planner with the manifest which gives detailed
information on the cargo to be handled
 liaising with stevedores and terminal operators regarding the safe handling of
containers, break-bulk and bulk liquids, and ensuring that the master is well aware of
shore requirements and vice versa.
 Arranging any repairmen in case the ship requires major repairing
It is also a shipping agent’s responsibility that dues are paid and discharged especially
when it comes to customs. The payment of the dues can also extend to those working on
the ship on a contract basis and whose contract might have come to end after reaching
that particular port. Keeping all these details in mind, a shipping agent cannot allow any
scope of neglecting his duty.

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Duties towards the ship’s crew

The ship agent is also responsible for organising:
 crew changes, any associated immigration documentation and arrangements such

as booking flights
 paying the crew
 ship services including repairs and maintenance.
The ship’s agent takes care of every need and requirement of the crew like:
 getting local currency,
 getting the mail,
 refilling the food and water containers and many other such duties.
Warehousing
A warehouse is a commercial building for storage of goods by manufacturers, importers,
exporters, wholesalers, customs, transport businesses, etc.
They usually have loading docks to load

and unload goods from trucks. Sometimes
warehouses are designed for the loading
and unloading of goods directly from
railways, airports or seaports.
Stored goods can include any raw

materials, packing materials, spare parts,
components, or finished goods associated
with agriculture, manufacturing, or commerce.
Equipment used in a warehouse

Equipment used by warehouse staff include cranes and forklifts.

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Forklifts and lift trucks

Lift trucks come in a variety of sizes and forms, and are used for different specific purposes.
Attachments are pieces of equipment which can be fixed to the lift truck for handling
different types of load. This means that for specific types of freight, the correct type of lift
truck and attachment must be used to maximise work efficiency and ensure that the
freight being handled is not unnecessarily damaged or carried in a dangerous manner.
Let’s have a look at these various types of lift trucks and attachments.
CODE F1 CODE F2 CODE F3 CODE F4
CAPACITY UP TO CAPACITY UP TO CAPACITY UP TO 15 CAPACITY >15

3000kgs 7000kgs 000kgs 000kgs
Forklift Petrol, diesel, gas or electric
Load carried outside front wheels Designed to lift
Can be pedestrian or rider operated
Load centre’s:- heel of forks to centre of load
Fulcrum point about front axle
Aisle stacking
Reach truck Electric only
Load centres vary behind & in Designed to lift

front of front wheels depending High level warehouse
on mast position operations
Moving mast
CODE F5
Rider operated
UP TO A RATED CAPACITY
Fulcrum point
OF 2 500kgs
Pantograph

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AISLE STACKING
CODE F6
BELOW RATED CAPACITY

OF 2000kgs
CODE F7
ABOVE RATED CAPACITY OF 2000kgs
Pedestrian controlled lift truck Electric only
Load carried inside front wheels Designed to transport, and lift
Pedestrian operated to low level
Front legs usually lift about 200mm
Fulcrum point
Aisle stacking
CODE F8 CODE F9
FIRST & SECOND LEVEL ALL RACKING LEVELS

RACKING INCLUDING HIGH RISE
Order picker lift trucks Electric only
Load & man inside front wheels Designed to lift
Pedestrian operated low level order picker Manual lower override
Rider operated high level order picker Safety rope descent in
Not normally used to stack pallets emergency
Fixed mast Safety belts or interlocking

barriers
Fixed front legs
Fulcrum point
Aisle stacking – does not turn in aisle
Safety lower or means of descending when stuck at high

level

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Side guide wheels
Side loader lift truck Diesel or electric
Load inside wheel base Designed to lift &
Automatic tilt compensation carry long loads
Mast retracts from side into wheelbase Often used

without pallets
Lower load onto platform to travel
with cantilever
CODE F10 Used normally outdoors on rough terrain
racking
Truck does not turn in aisle
Side guide wheels on some electric

machines
Rough terrain / earthmoving/ Diesel or petrol

agricultural equipment with lift truck Designed to lift
attachments
Large wheels for
Load carried outside front wheels rough terrain
Rider operated Be aware of
Load centres heel of forks to centre of actions over
CODE F11
load rough ground &
Fulcrum point about front axle encountering

obstacles
Sometimes has articulated body
Aisle stacking
Generally as for larger counter

balanced trucks
Pallet lift truck Electric

Load carried over front wheels Designed to
Pedestrian operated transport
May lift to very

CODE F12
low level

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CODE F14
Elevating cab, to
service all levels
CODE F13
Non-elevating cab, to service all levels
Very narrow aisle lift trucks Electric only
Load inside wheel base Designed for high bay
Truck doesn’t turn in aisle narrow aisle racking
Turret head turns in aisle when required Requires feeder trucks to

charge
Fixed mast similar to reach truck
P & d stations at end of aisle
Fixed front legs
For elevating cab
Fulcrum point
Manual lower override
level with man up machine Safety rope descent in
emergency
Side guide wheels
Safety belts or interlocking
Automatic aisle location systems
barriers
Wire guidance & automatic lift heights
CODE F15 RAIL MOUNTED STACKER LIFT TRUCK, NON-ELEVATING CAB
CODE F16 RAIL MOUNTED STACKER LIFT TRUCK, ELEVATING CAB

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Rail mounted stacker lift trucks Electric only
Load inside wheel base Designed for high bay
Truck doesn’t turn in aisle narrow aisle racking
Turret head turns in aisle when required P & d stations at end of aisle
Fixed mast For elevating cab
Fixed front legs Manual lower override
Fulcrum point Safety rope descent in

emergency
level with man up machine Safety belts or interlocking
barriers
Side guide wheels
Automatic aisle location systems
Wire guidance & automatic lift heights
Overhead Cranes
Due to variations in all types of cranes the information set out below might not be exactly
the same as that of the cranes at your worksite.
Overhead cranes vary in size and configuration (one or two hook blocks). They are either
mounted in the air on beams, or they run on rails at ground level (portal cranes). These
cranes handle loads from 1 ton to 500ton. They are used widely in the manufacturing and
engineering field to transport liquid metals, machine components, crates, containers etc.
Below are some examples of overhead and portal cranes. (Only the crane components
are dealt with)

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Overhead Cranes

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Portal Cranes

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Warehousing processes
Major warehousing processes include:
 Receiving
 Inspection/ Acceptance
 Proper Storage
 Order preparation / picking
 Dispatching/ Delivery
 Inventory management (Checking as per System vs. Actual stock) It can be done
daily, weekly, monthly or quarterly.
Warehouses frequently provide services, such as:
 Co-packing
 Kitting
 Repair
Piece pick
A piece pick, also known as broken case pick, split-case pick, each pick, over-pack or
pick/pack, is a type of order selection process where product is picked and handled in
individual units and placed in an outer carton, tote or other container before shipping.
Catalogue companies and internet retailers are examples of predominantly piece-pick
operations. Their customers rarely order in pallet or case quantities; instead, they typically
order just one or two pieces of one or two items.
Material direction and tracking in a warehouse can be coordinated by a Warehouse

Management System (WMS), a database driven computer program.
The WMS is used by logistics personnel to improve warehouse efficiency:
 by directing putaways
 and also to maintain accurate inventory by recording warehouse transactions.

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Storage systems
Some of the most common warehouse storage systems are:
 Pallet rack including selective, drive-in, drive-thru, double-deep, pushback, and

gravity flow
 Mezzanine including structural, roll formed, racks
 Vertical lift modules
 Horizontal carousels
 Vertical carousels
Types of pallets
2 way entry pallets non reversible Good condition
 Top deck slatted or solid

 2, 3 or more main bearers
 Suitable for all rack depths
 Not suitable to block stack
2 way entry pallets, bottom Good condition
boards, non reversible
No broken
 2, 3 or more main bearers bottom slats
 Usually 3 bottom slats
Not suitable for
 Rack depth to be pallet
depth – 2 bearers stackers
 Suitable to block stack on
solid loads only
 Not suitable for stackers
2 way entry pallets reversible Good condition
 Top deck slatted or solid

 2, 3 or more main bearers Not suitable for
 Bottom deck same as top
deck stackers
 Suitable for all rack depths
 Suitable to block stack
 Not suitable for pallet trucks
or stackers

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4 way entry pallets non reversible Good condition
 Top deck slatted or solid

 3 secondary slats Suitable for
 9 blocks & 3 bottom slats
 Stack on rack bottom stackers on face
bearers
 Rack depth to be pallet
without bottom
depth – 100/150 mm bearers
 Suitable to block stack
on solid loads only
 Suitable for stackers on
face without bottom
bearers
4 way entry pallets perimeter Good condition

based
Not suitable for
 3 secondary slats stackers
 9 blocks & 3 bottom slats
 4 infill slats
 Stack on rack either way
round
depth – 100/150 mm
 Suitable to block stack
4 way entry pallets reversible Good condition

 3 secondary slats Not suitable for
 9 blocks & 3 bottom slats
stackers
 Bottom deck same as top
deck
 Stack on rack with
secondary slats front to
back
depth – 100/150 mm
 Suitable to block stack

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Post pallets All posts in

position to stack
 4 legs with cups or plates
 Usually removable posts Feet to be
 Usually steel construction
located over
 Stack on rack with skid
channels or decks posts
 Rack depth same or larger
than pallet depth
 Suitable for block stack,
load carried by posts
Pallet convertor All posts in

position to stack
 Metal frame fitted to normal
wooden pallet Feet to be
 Can be collapsible to
located over
occupy less space on return
or storage posts
 Allows stacking of crushable
load
Drum pallets
 For carrying drums without

using drum attachment
 Permits stacking of drums
Bulk bin pallet
Pallet collar with lid

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Bulk box pallet –

collapsible
Automation and optimization
Automatic storage warehouse for small parts
Some warehouses are completely automated, and require only operators to work and
handle all the tasks.
These systems are coordinated by computers running logistics automation software.
Pallets and products move on a system of automated conveyors, cranes and automated
storage and retrieval systems. These systems are often installed in refrigerated warehouses
where temperatures are kept very cold to keep product from spoiling. This is especially
true in electronic warehouses where they require specific temperatures to avoid
damaging the parts.
Automated systems are also popular where land is expensive, as automated storage
systems can use vertical space efficiently. These high-bay storage areas are often more

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than 10 meters high, with some over 20 meters high. Automated storage systems can be
built up to 40m high.
Slotting addresses
For a warehouse to function efficiently, the facility must be properly slotted.
Slotting addresses which storage medium a product is picked from – a pallet rack or
carton flow), and how they are picked pick-to-light, pick to voice, or pick-to-paper
With a proper slotting plan, a warehouse can improve its inventory rotation requirements—
such as FIFO (first in first out), LIFO (last in first out) —control labour costs and increase
productivity.
Modern trends
Aisle with pallets on storage racks
Traditional warehousing has declined since the last decades of the 20th century, with the
gradual introduction of Just in Time (JIT) techniques. The JIT system promotes product
delivery directly from suppliers to consumer without the use of warehouses.
However, with the gradual implementation of offshore outsourcing and offshoring in about
the same time period, the distance between the manufacturer and the retailer (or the
parts manufacturer and the industrial plant) grew considerably in many domains,

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necessitating at least one warehouse per country or per region in any typical supply chain
for a given range of products.
Recent retailing trends have led to the development of warehouse-style retail stores. These
high-ceiling buildings display retail goods on tall, heavy duty industrial racks rather than
conventional retail shelving. Typically, items ready for sale are on the bottom of the racks,
and crated or palletized inventory is in the upper rack. Essentially, the same building serves
as both warehouse and retail store.
Another trend relates to Vendor Managed Inventory (VMI). This gives the vendor the
control to maintain the level of stock in the store. This method has its own issue that the
vendor gains access to the warehouse.
Large exporters/manufacturers use warehouses as distribution points for developing retail

outlets in a particular region or country.
This concept reduces end cost to the consumer and enhances the production sale ratio.
Activity 5

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THE SA MARKET
Trade and Investment

South Africa has rich mineral resources.
 It is the world's largest producer and exporter of platinum;

 is a significant producer of gold, manganese, chrome, vanadium, and titanium;
 and also exports a significant amount of coal.
During 2000, platinum overtook gold as South Africa's largest foreign exchange earner. The
value-added processing of minerals to produce ferroalloys, stainless steels, and similar
products is a major industry and an important growth area.
Manufacturing
The country's diverse manufacturing industry is a world leader in several specialised
sectors, including
 motor vehicles and parts,
 railway rolling stock,
 synthetic fuels,
 and mining equipment and machinery.
Agriculture
Primary agriculture accounts for
about 3% of the gross domestic
product. Major crops include citrus
and deciduous fruits, corn, wheat,
dairy products, sugarcane, tobacco,
wine, and wool. South Africa has
many developed irrigation schemes
and is a net exporter of food.

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Telecommunications
The domestic telecommunications infrastructure provides modern and efficient service to
urban areas, but at comparatively high costs and with limited coverage in rural areas.
South Africa has made some strides towards liberalising its telecommunication market;
however, many obstacles exist for further progress. The passing of the Electronic
Communications Act (ECA) of 2005 marked a new regulatory framework for liberalizing
the telecommunication market in South Africa. Established entities such as Telkom and
Multi-choice secured market-share under prior monopoly regimes, which make it difficult
for new entrants to offer competitive telecommunications services (e.g. pay-TV and
internet). The U.S.-led SEACOM project is the first of a series of undersea cable projects to
become operational. SEACOM provides the first access to true broadband connectivity
for countries on Africa’s eastern seaboard, which were previously 100% reliant on Telkom's
expensive satellite-based technology. SEACOM's landing stations operate on a market-
based, "open-access" system.
GDP
Annual GDP growth between 2004 and 2007 averaged 5.0%, but fell to a rate of 3.7% in
2008 because of higher interest rates, power shortages, and weakening commodities
prices. GDP contracted by 1.8% in 2009 as South Africa experienced its first recession in 18
years. The government estimated that the economy must achieve growth at a minimum
of 6% to offset unemployment, which was estimated at 24.3% in December 2009.
Inflation averaged 11.3% in 2008 and 7.2% in 2009. Increasing food and fuel prices pushed
inflation above the upper end of the South African Reserve Bank’s (SARB’s) 3% to 6%
inflation target range for the better part of 2007 and 2008. Inflation started to decline in
2009. A central inflation forecast by the SARB projected that inflation would continue its
downward trajectory and return to the 3% to 6% target range in the second half of 2010.
Inflation is expected to average 5.8% and 5.6% in 2010 and 2011, respectively. The SARB
reduced interest rates at regular intervals from December 2008. The cumulative reduction
through August 2009 was 500 basis points, bringing the prime overdraft rate to 10.5%.
Subsequently over late 2009 and early 2010, the Reserve Bank left interest rates
unchanged.

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The government managed to eliminate the fiscal deficit in FY 2007 and FY 2008. However,
a fiscal deficit of 1.2% of GDP was recorded in FY 2009, mainly due to the impact of weak
domestic demand and the global economic crisis on tax revenues. The fiscal deficit was
expected to increase to 6.7% of GDP in 2009-2010, according to the Finance Minister's
February 2010 budget speech. The economy was expected to grow by 3.0% in 2010, as
South Africa emerges from its recession.
SADEC
South Africa is a member of the Southern African Customs Union (SACU) and the Southern
African Development Community (SADC). In August 1996, South Africa signed a regional
trade protocol agreement with its SADC partners. The agreement was ratified in
December 1999, and implementation began in September 2000. It provided duty-free
treatment for 85% of trade in 2008 and aims for 100% by 2012. A U.S.-SACU Trade,
Investment and Development Cooperative Agreement was signed in July 2008. The four
areas singled out for special attention under the TIDCA are customs cooperation,
technical barriers to trade, sanitary/phytosanitary (SPS) issues, and trade and investment
promotion.
Tax treaty
A U.S.-South Africa bilateral tax treaty went into effect on January 1, 1998, and a bilateral
trade and investment framework agreement was signed in February 1999.
WTO
South Africa is a member of the World Trade Organization (WTO). U.S. products qualify for
South Africa's most-favoured-nation tariff rates. South Africa is also an eligible country for
the benefits under the African Growth and Opportunity Act (AGOA), and most of its
products can enter the United States market duty free.
Imports and exports

South Africa has made great progress in dismantling its old economic system, which was
based on import substitution, high tariffs and subsidies, anticompetitive behaviour, and
extensive government intervention in the economy. The leadership has moved to reduce

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the government's role in the economy and to promote private sector investment and
competition. It has significantly reduced tariffs and export subsidies, loosened exchange
controls, cut the secondary tax on corporate dividends, and improved enforcement of
intellectual property laws. A competition law was passed and became effective on
September 1, 1999.
South Africa has done away with most import permits except on used products and
products regulated by international treaties. It also remains committed to the simplification
and continued reduction of tariffs within the WTO framework and maintains active
discussions with that body and its major trading partners.
Exports amounted to 27% of GDP in 2009.
Mineral products, precious metals and stones, plastics, chemical products, electrical
appliances, vehicles and aircraft, computing machines, base metals and machinery are
South Africa’s main exports.
We mainly import machines, food, capital goods, chemicals, vehicles, original equipment
components, fuel and energy from countries like UK, USA, Saudi Arabia, France and
Germany.
Trading partners
South Africa's major trading partners include China, Germany, the United States, Japan,
and the United Kingdom.
Japan displaced the U.S. as South Africa's largest export market in 2008, and China
overtook both in 2009.
South Africa's trade with other Sub-Saharan African countries, particularly those in the
southern Africa region, has increased substantially.

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Mining and minerals in South Africa

South Africa is a world leader in mining. The country is famous for its abundance of mineral
resources, accounting for a significant proportion of world production and reserves, and
South African mining companies are key players in the global industry.
Mineral resources
South Africa is the world's biggest producer of platinum, and one of the leading producers
of gold, diamonds, base metals and coal.
South Africa holds the world's largest natural reserves of gold, platinum-group metals,
chrome ore and manganese ore, and the second-largest reserves of zirconium, vanadium
and titanium.
At the same time, there is considerable potential for the discovery of other world-class
deposits in areas yet to be exhaustively explored.
The sector spans the full spectrum of the five major mineral categories - namely precious
metals and minerals, energy minerals, non-ferrous metals and minerals, ferrous minerals,
and industrial minerals.

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South Africa’s mineral wealth is typically found in the following well-known geological
formations and settings:
 The Witwatersrand Basin yields some 94% of South Africa’s gold output and contains
considerable resources of uranium, silver, pyrite and osmiridium
 the Bushveld Complex is known for its platinum-group metals (PGMs) (with
associated copper, nickel and cobalt mineralisation), chromium and vanadium-
bearing titanium iron-ore formations as well as large deposits of industrial minerals,
including fluorspar and andalusite
 the Transvaal Supergroup contains enormous resources of manganese and iron ore
 the Karoo Basin extends through Mpumalanga, KwaZulu-Natal, Free State as well as
Limpopo, hosting considerable bituminous coal and anthracite resources
 the Phalaborwa Igneous Complex hosts extensive deposits of copper, phosphate,

titanium, vermiculite, feldspar and zirconium ores
 kimberlite pipes host diamonds that also occur in alluvial, fluvial and marine settings
 heavy mineral sands contain ilmenite, rutile and zircon
 significant deposits of lead-zinc ores associated with copper and silver are found in
the Northern Cape near Aggeneys.
Apart from its prolific mineral reserves, South Africa's strengths include an extremely high
level of technical and production expertise, and comprehensive research and
development activities.
The country has world-scale primary processing facilities covering carbon steel, stainless
steel and aluminium, in addition to gold and platinum. It is also a world leader of new
technologies, such as a ground-breaking process that converts low-grade superfine iron
ore into high-quality iron units.

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Contribution to the economy

With the growth of South Africa's secondary and tertiary industries, the relative contribution
of mining to South Africa's gross domestic product (GDP) has declined over the past 10-20
years.
Nonetheless, the industry is continually adapting to changing local and international world
conditions, and remains a cornerstone of the economy, making a significant contribution
to economic activity, job creation and foreign exchange earnings.
The sector accounts for roughly one-third of the market capitalisation of the JSE, and
continues to act as a magnet for foreign investment in the country.
In 2009, according to the Chamber of Mines of South Africa, the industry contributed:
 8.8% directly, and another 10% indirectly, to the country's gross domestic product
(GDP).
 Over 50% of merchandise exports, if secondary beneficiated mineral exports are

counted.
 About 1-million jobs (500 000 directly).
 About 18% of gross investment (10% directly).
 Approximately 30% of capital inflows into the economy via the financial account of
the balance of payments.
 93% of the country's electricity generating capacity.
 About 30% of the country's liquid fuel supply.
 Between 10% and 20% of direct corporate tax receipts (together worth R10.5-billion).
In 2009, South Africa's mining industry was the largest contributor by value to black
economic empowerment (BEE) in the economy, in terms of the value of BEE transactions
completed.

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Mineral sales and exports

In 2009, coal became the largest component of South Africa's mining industry by sales
value, with total sales of R65.4-billion, followed by platinum group metals at R58-billion and
gold at R49-billion - the top three minerals accounting for 71.2% of total mineral sales.
Most commodity prices declined in 2009 due to the impact of the global financial crisis,
which led to production declines for most minerals, resulting in the value of South African
mineral sales falling by 19.6% to R241.3-billion.
South African mining companies, like most of their international peers, responded to the
crisis by cutting back on supply and closing uneconomic production, which saw total
South African mining production falling by 6.6% in 2009.
According to the Chamber of Mines, the decline in mineral sales was driven by the
decline in sales of manganese (down 67.8%), platinum group metals (down 36.7%) and
coal (down 9.8%).
While total primary mineral exports sales fell by 19.7% to R176.4-billion in 2009, they still
accounted for 31.7% of South Africa's total merchandise exports.
And the addition of exports of secondary beneficiated minerals - such as catalytic

converters, ferro-alloys, steel, chemicals and plastics - took the exports of the country's
"mineral complex" to about R280-billion, or about 50% of South Africa's total merchandise
exports, in 2009.
South Africa's farming sectors

South Africa has a dual agricultural economy, with both well-developed commercial
farming and more subsistence-based production in the deep rural areas.
Covering 1.2-million square kilometres of land, South Africa is one-eighth the size of the
United States and has seven climatic regions, from Mediterranean to subtropical to semi-
desert.

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This biodiversity, together with a coastline 3 000 kilometres long and served by seven
commercial ports, favours the cultivation of a highly diverse range of marine and
agricultural products, from deciduous, citrus and subtropical fruit to grain, wool, cut
flowers, livestock and game.
Agricultural activities range from intensive crop production and mixed farming in winter
rainfall and high summer rainfall areas to cattle ranching in the bushveld and sheep
farming in the arid regions. Maize is most widely grown, followed by wheat, oats, sugar
cane and sunflowers.
While 13% of South Africa's land can be used for crop production, only 22% of this is high-
potential arable land. The most important limiting factor is the availability of water. Rainfall
is distributed unevenly across the country, with some areas prone to drought. Almost 50%
of South Africa's water is used for agriculture, with about 1.3-million hectares under
irrigation.
Today, South Africa is not only self-sufficient in virtually all major agricultural products, but is
also a net food exporter. Farming remains vitally important to the economy and
development of the southern African region.
Field crops and horticulture

Grain and oilseeds
The grain industry is one of the largest in
South Africa, producing between 25% and
33% of the country's total gross agricultural
production. The largest area of farmland is
planted with maize, followed by wheat and,
to a lesser extent, sugarcane and
sunflowers.

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Maize is the largest locally produced field crop, and the most important source of
carbohydrates in the southern African region. South Africa is the main maize producer in
the Southern African Development Community (SADC).
More than 9 000 commercial maize producers are responsible for the major part of the
South African crop, while the rest is produced by thousands of small-scale producers.
Maize is produced mainly in North West province, the Free State, the Mpumalanga
Highveld and the KwaZulu-Natal Midlands. Local consumption of maize amounts to about
8mt, and the surplus is exported.
Wheat is produced in the winter rainfall areas of the Western Cape and the eastern parts
of the Free State. Barley is produced mainly on the southern coastal plains of the Western
Cape. The Oudtshoorn district is responsible for about 90% of the lucerne seed produced
in South Africa. Sorghum is cultivated in the drier parts of summer rainfall areas such as
Mpumalanga, the Free State, Limpopo, North West and Gauteng.
South Africa is the world's 10th largest producer of sunflower seed, which is produced in
the Free State, North West, the Mpumalanga Highveld and Limpopo province. Groundnuts
are grown mainly in the Free State, North West and the Northern Cape.
Sugar
South Africa is the world's 13th largest sugar producer. Sugarcane is grown in 15 areas
extending from northern Pondoland in the Eastern Cape through the coastal belt and
Midlands of KwaZulu-Natal to the Mpumalanga Lowveld. An estimated 2.5mt of sugar is
produced each season. Some 50% is marketed in southern Africa, with the rest exported
to Africa, the Middle East, North America and Asia.
Fruit
Deciduous fruit is grown mainly in the Western Cape and in the Langkloof Valley in the
Eastern Cape. Smaller production areas are found along the Orange River and in the Free
State, Mpumalanga and Gauteng. This industry's export earnings represent about 12% of
South Africa's total earnings from agricultural exports.

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Citrus is produced in the irrigation areas of Limpopo, Mpumalanga, the Eastern Cape,
Western Cape and KwaZulu-Natal. Pineapples are grown in the Eastern Cape and
northern KwaZulu-Natal.
Other subtropical crops - avocados, mangoes, bananas, litchis, guavas, pawpaws,

granadillas, and macadamia and pecan nuts - are produced in Mpumalanga, Limpopo
and in the subtropical coastal areas of KwaZulu-Natal and the Eastern Cape.
Wine
South Africa is the ninth largest wine
producer in the world. Over 110
000ha of land are under cultivation,
with over 300-million vines. About
84% of wines are produced by
cooperatives. Over 4 000 primary
wine producers employ over 60 000
people.
South African wine exports rose from
22-million litres in 1992 to almost 314-million litres in 2007, with exports, between January
2007 and January 2008, outstripping domestic sales for the first time ever.
Vegetables
About 40% of South Africa's potato crop is grown in the high-lying areas of the Free State
and Mpumalanga. Limpopo, the Eastern, Western and Northern Cape, and the high-lying
areas of KwaZulu-Natal are also important production areas. Of the total crop, about 50%
is delivered to fresh produce markets and a further 18% processed, with the South African
potato processing industry having grown tremendously over the past decade.
Potatoes make up about 40% of vegetable farmers' gross income, with tomatoes, onions,
green mealies and sweetcorn contributing about 38%.

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Tomatoes are mainly produced in Limpopo, the Mpumalanga Lowveld and Middleveld,
the Pongola area of KwaZulu-Natal, the southern parts of the Eastern Cape, and the
Western Cape. Onions are grown in Mpumalanga, the Western Cape and the southern
Free State. Cabbage production is concentrated in Mpumalanga and the Camperdown
and Greytown districts of KwaZulu-Natal.
Cotton
Cotton is cultivated in Mpumalanga, Limpopo, Northern Cape, KwaZulu-Natal and North
West. It constitutes about 74% of natural fibre and 42% of all fibre processed in South
Africa. Cotton is grown under irrigation as well as in dryland conditions. Seventy-five
percent of local production is harvested by hand.
Tobacco
Virginia tobacco is produced mainly in Mpumalanga and Limpopo, with smaller quantities
of Oriental tobacco grown in the Western and Eastern Cape. There are more than 1 000
growers in the country, producing some 34-million kilograms every year on about 24 000ha
of land.
Tea
Honeybush tea grows mainly in the
coastal and mountainous areas of the
Western Cape and in certain areas of
the Eastern Cape. Honeybush has
become a commercial crop, with the
production of more than 100 tons of
processed tea per year. South Africa's
industry has seen an improvement in the
quality of tea and the establishment of
export standards, the construction of a large processing and packaging facility in Mossel
Bay, increased consumer awareness, the appearance of several brand names on
supermarket shelves, and a growing overseas market.

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Rooibos tea is an indigenous herb produced mainly in the Cedarberg area of the Western
Cape.
Ornamental plants and cut flowers

Ornamental plants are produced throughout South Africa, but production for export is
concentrated in the central parts of Limpopo, Mpumalanga and Gauteng province. The
crop includes nursery plants, cut flowers and pot plants. The country's most important plant
export products are gladioli, proteas, bulbs, chrysanthemum cuttings and roses. Amaryllis
bulbs are a lucrative export product to the US.
The fynbos industry is being transformed from wild harvesting to cultivation, with an array
of cultivars planted. Further fynbos species have potential for development as crops,
provided the necessary research funding can be secured. Dried flowers form an important
component of the fynbos industry. A large variety of proteas, conebushes and other
products are well established in the marketplace.
Livestock farming
Livestock is the largest agricultural sector in South Africa, with a population of some 13.8-
million cattle and 28.8-million sheep. Stock breeders concentrate on the development of
breeds that are well adapted to diverse climatic and environmental conditions.
Dairy farming
Dairy is produced throughout South Africa, with
most farms in the eastern and northern Free State,
North West, the KwaZulu-Natal Midlands, the
Eastern and Western Cape, Gauteng and the
southern parts of Mpumalanga. The four major
dairy breeds in South Africa are the Holstein,
Jersey, Guernsey and Ayrshire.
The dairy industry is important to South Africa's job market, with over 4 000 milk producers
employing about 60 000 farmworkers and indirectly providing jobs to some 40 000 people.

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Beef farming
South Africa produces 85% of its meat requirements, with 15% imported from Namibia,
Botswana, Swaziland, Australia, New Zealand and the EU. Local demand generally
outstrips production, even though there are untapped reserves in the communal farming
areas.
Cattle ranches are found mainly in the Eastern Cape, parts of the Free State and KwaZulu-
Natal, Limpopo and the Northern Cape. Popular beef breeds include the indigenous
Afrikaner and Nguni and locally developed Bonsmara and Drakensberger. European and
American breeds such as Charolais, Hereford, Angus, Simmentaler, Sussex, Brahman and
Santa Gertrudis are maintained as pure breeds or used in cross-breeding.
Sheep and goat farming

South African sheep farming is concentrated in the Northern and Eastern Cape, Western
Cape, Free State and Mpumalanga, with Ermelo in Mpumalanga being one of the largest
wool-producing districts. About 50% of the country's sheep are fine-woolled Merinos. Other
breeds include the locally developed Afrino, a woolled mutton breed adapted to arid
conditions, the South African Mutton Merino, the Dohne and the Merino Landrace. South
Africa's mutton is produced from the Dorper - a highly productive and locally developed
mutton breed for arid regions - and the woolled Merino.
Karakul sheep are farmed in the more arid areas. The indigenous meat-producing Boer
goat accounts for about 30% of all commercial goats. The Angora goat is used for mohair
production.
Poultry and pig farming

South Africa's poultry and pig farms are more intensive than the extensive sheep and
cattle production, and are found near the metropolitan areas of Gauteng, Durban,
Pietermaritzburg, Cape Town and Port Elizabeth. The predominant pig breeds are the
South African Landrace, the Large White, the Duroc and the Pietrain.

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South Africa's annual poultry meat production is around 960 000 tons. Broiler production
contributes about 80% to total poultry meat production, with the rest made up of mature
chicken slaughter (culls), small-scale and backyard poultry production, ducks, geese,
turkeys and other specialised white meat products.
South Africa accounts for around 65% of world sales of ostrich products - leather, meat
and feathers.
Game farming
South Africa has more game and a wider variety of game species than most countries.
Game farming has grown over the years, and today is a viable industry with great
economic potential. The country's main game areas are in Limpopo province, North West,
Mpumalanga, the Free State, the Eastern Cape, the Karoo, the Kalahari in the Northern
Cape and the thorn scrub of KwaZulu-Natal.
A descriptive game-production model has been developed for optimising intensive

animal production on game farms, with the potential to increase the global produce of
the game industry by between 8% and 15%.
Aquaculture
The aquaculture industry in South Africa continues to make meaningful progress in
cultivation technology, marketing strategy, marketing practice and scientific innovation.
Mussels, trout, tilapia, catfish, oysters and waterblommetjies (Cape pondweed) are the
major aquaculture species. Mussel farming occurs mainly at Saldanha Bay in the Western
Cape.
Exports
South Africa is among the world's top five exporters of avocados, grapefruit, tangerines,
plums, pears, table grapes and ostrich products.
Farming contributes some 8% to the country's total exports. The largest export groups are
wine, citrus, sugar, grapes, maize, fruit juice, wool, and deciduous fruit such as apples,
pears, peaches and apricots.

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Other important export products are avocados, dairy products, flowers, food
preparations, hides and skins, meat, non-alcoholic beverages, pineapples, preserved fruit
and nuts, sugar, and wines.
A number of high-growth niche markets are emerging, such as herbal beverages and
luxury seafoods.
Competitive advantages
South African agriculture and agribusiness have a number of competitive advantages,
making the country both an important trading partner and a viable investment
destination.
World-class infrastructure
South Africa has three deep-water ports, three international airports, a network of roads
and railways, well-developed cold chain facilities, and a sophisticated financial sector.
Counter-seasonality to Europe
South Africa's counter-seasonality to Europe, the country's primary export market for
horticultural and floricultural products, is a major competitive advantage. South Africa is
the closest major southern hemisphere producer of horticultural and floricultural products
to Europe, and has significantly shorter shipping times than its rivals.
Biodiversity
South Africa's diversity of climates - tropical, subtropical and desert - allows for a vast and
varied array of agricultural products.
Marine resources
South Africa has almost 3 000 kilometres of
coastline which is commercially used both for
conventional harvesting and for mariculture and
aquaculture.

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Competitive input costs

While South Africa boasts infrastructure comparable to first-world countries, its cost
structures remain highly favourable. Electricity is still relatively inexpensive, and labour rates
are also competitive.
Trade agreements
South Africa's agriculture and agribusiness sector are benefiting from increased market
access to its key trading partners, the EU and the US, as well as to sub-Saharan countries,
through a number of trade agreements.
Deregulation and market freedom

Since the end of apartheid in 1994, South African agriculture has evolved from a highly
regulated and protected industry to one free from all constraints, unsubsidised by
government and capable of competing with the best in the world.
The Marketing of Agricultural Products Act of 1996 dramatically changed agricultural

marketing in the country by closing agricultural marketing boards, phasing out certain
import and export controls, eliminating subsidies, and introducing import tariffs to protect
South African farming from unfair international competition.
While a fairly radical process to some old-style producers in South Africa, deregulation has
ensured a leaner and stronger agricultural industry, with farmers and agribusiness able to
position themselves as players in a globally competitive environment.
Phasing out controls and closing marketing boards led to a short-term shortage of
essential services formerly provided by the boards and cooperatives, such as storage,
grading, deliveries, value adding, information dissemination and research.
As a result, specialised marketing support institutions, such as the South African Futures
Exchange (Safex) and the Agricultural Futures Market of the JSE, were established to
provide much-needed price risk management mechanisms.

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South Africa's Transport Network

South Africa has a modern and well developed transport infrastructure. The roads are
world-class. The air and rail networks are the largest on the continent, and the country's
ports provide a natural stopover for shipping to and from Europe, the Americas, Asia,
Australasia and both coasts of Africa.
The transport sector has been highlighted by the government as a key contributor to
South Africa's competitiveness in global markets. It is increasingly being seen a crucial
engine for economic growth and social development, and the government has unveiled
plans to spend billions of rands to improve the country's roads, railways and ports.
Ports and shipping

Major shipping lanes pass along the South African coastline in the south Atlantic and
Indian oceans. Approximately 96% of the country's exports are conveyed by sea, and the
eight commercial ports are the conduits for trade between South Africa and its southern
African partners as well as hubs for traffic to and from Europe, Asia, the Americas and the
east and west coasts of Africa.
The state-owned Transnet National Ports Authority manages the country's ports. These are:
 Richards Bay and Durban in KwaZulu-Natal;
 East London, Port Elizabeth and the Port of Ngqura in the Eastern Cape;
 and Mossel Bay, Cape Town and Saldanha in the Western Cape.
The Port of Ngqura, South Africa's newest eighth commercial port, has been developed
off the coast from Port Elizabeth in the Eastern Cape. Nqura is set to be the deepest
container terminal in Africa, and is a key part of Coega, one of the country's strategic
industrial development zones (IDZs).
On 4 October 2009, the container ship MSC Catania made history when it became the
first commercial vessel to discharge its cargo at Ngqura.

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Durban is Africa's busiest port and the largest container facility in southern Africa, while
Richard's Bay is the world's largest bulk coal terminal.
State-owned transport company Transnet is upgrading several of the country's ports as

part of a multi-billion rand capital expenditure programme.
Roads
South Africa's total road network is about 754 000 kilometres, of which over 70 000km are
paved or surfaced roads. The drive from Musina on South Africa's northern border to Cape
Town in the south is a 2 000km journey on well-maintained roads.
While the Department of Transport is responsible for overall policy, road-building and
maintenance is the responsibility of the South African National Roads Agency (Sanral) as
well as the nine provinces and local governments.
Sanral is responsible for the country's network of national roads, which grew to over 20
000km and an estimated value of over R40-billion in 2010.
Around 3 000km of the national roads are toll roads. About 1 800km of these are
maintained by Sanral, while the rest have been concessioned to private companies to
develop, operate and maintain.
A multi-billion rand freeway improvement scheme has significantly eased congestion on

the roads in Gauteng, the country's busiest province.

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Railways
South Africa has an extensive rail network – the 14th longest in the world – connecting with
networks in the sub-Saharan region. The country's rail infrastructure, which connects the
ports with the rest of South Africa, represents about 80% of Africa's total.
State-owned Transnet Freight Rail is the largest railroad and heavy haulier in southern
Africa, with about 21 000km of rail network, of which about 1 500km are heavy haul lines.
Just over 8 200km of the lines are electrified.
South Africa has also opened the door to private rail operators, with Transnet calling for
expressions of interest from private sector companies to operate branch railway lines, or
feeder lines, which comprise some 35% of the country's national rail network.
In his 2011 national budget speech, Finance Minister Pravin Gordhan announced an 18-
year, R86-billion programme to upgrade the country's rail transport infrastructure.
Airports and airlines

Sixty-two airlines, making 274 000 aircraft landings and carrying 16.5-million passengers
(counting departures only), moved through South Africa's 10 principal airports in 2009.
The 10 airports are run by Airports Company South Africa, and handle over 98% of the
country's commercial air traffic. They comprise major international airports in

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Johannesburg, Cape Town and Durban, as well as airports in Bloemfontein, Port Elizabeth,
East London, George, Kimberly, Pilansberg and Upington.
Acsa invested about R20-billion in South Africa's airports in the run-up to the 2010 Fifa
World Cup, with major upgrades to Johannesburg's OR Tambo International Airport and
Cape Town International Airport.
The old Durban International Airport was shut down and replaced by King Shaka
International Airport to the north of Durban, built from scratch at a cost of R7.9-billion.
Twenty-one air traffic control centres, run by Air Traffic and Navigation Services, support
operations that cover 145 licensed airports with paved runways and more than 580
aerodromes with unpaved runways.
The Airports Council International named Cape Town International the best airport in
Africa in 2011. OR Tambo International, Africa's busiest airport, was named third best and
King Shaka International fourth best airport on the continent.
South African Airways (SAA) is by far the largest air carrier in Africa, with connections to
more than 20 cities across the continent. As a Star Alliance member, SAA also offers its
customers 975 destinations in 162 countries and 18 100 flights daily.
Sea freight
Sea freight is the most economic form of transportation by which goods are moved
between countires in the export process. What is more, the use of containerisation for
packing and carrying goods has greatly increased the volumes of cargo moved by sea,
the speed of transit and the safety of the cargo in question.
The following factors should be taken into account when considering the transit times for
goods being carried by sea. These are:
 The frequency of sailing
 The actual sailing time between the port of loading and the port of discharge

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 If the sailing is a direct sailing or a transshipment sailing; that is to say will the vessel
sail directly to the port of discharge or will the cargo be placed on a second vessel
and then delivered to a final port of discharge
 Is the sailing an inducement sailing, the vessel will only call the port of loading or
discharge if there is sufficient cargo to load or discharge
Types of shipping companies

There are three types of shipping companies servicing South African ports they are:
 Liner operators - vessels that carry containers (6 and 12 metre containers) these sail
on fixed dates and to predetermined ports
 Charter operators - vessels that are utilised for a specific voyage
 Tanker and dry bulk operators - vessels that carry bulk cargo such as oil and grains
Conference vs non-conference
Liner operators in turn can be divided into two further categories, namely:
 Conference operators
 Independent or non-conference operators
Conference services
A conference line is a group of two or more shipping lines, which enter into an agreement
to adopt the use of a common freight rate. They provide regular scheduled sailings on
specific routes. The advantages of the conference lines are regular scheduled services
even when volumes of cargoes are low, conference lines will call the port of loading and
or the discharge port. The other major benefit of using a conference vessel is; should you
miss the sailing of one conference vessel, then you can slot your cargo onto the next
available vessel, provided that the vessel is a member of the same conference.
Independent or non-conference operators

Independent or non-conference operators, operate within their own rate structures and
sailing schedules. They are not contractually bound into a conference agreement. The
advantage of the independent lines is that they are generally more competitive in their

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freight rate structures. The independent operators however do not have the same
obligations as conference lines and are entitled to change their services to suit market
conditions. There are however successful independent operators that quote competitive
rates and provide regular sailings.
Types of ships operating in international trade

A visit to any harbour around the world will highlight the many different types of ships that
one finds plying international waters. We have listed the msot common types of ships
operating in international waters below:
 Cellular or multipurpose - ships that are built to carry containerised cargo and also
break bulk cargoes
 Conventional break-bulk - ships that carry only breakbulk, non-containerised cargo.

"Cellular or multipurpose" these vessels are largely replacing break bulk vessels
 Most cellular vessels are able to accommodate break bulk/non containerised cargo
on the upper most stack of the vessel
 Ro-Ro - ships that are multipurpose, with the addition of a stern ramp, to the quayside,
by which cargoes are received and dispatched
 Reefer vessels" - these are vessel dedicated to carrying refrigerated cargoes
 Lo-Lo - vessels have their own gantry or crane on board, these vessels can load and
discharge their own cargoes
Air freight
The first consignment of cargo carried by air
was transported between London and Paris
in 1924. Since this first cargo flight the
carrying capacity and efficiency of aircraft
has developed and increased dramatically.
The movement of cargo by air is a highly
specialised business, which is, in many
respects, very different from moving cargo

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by sea or overland. It is subject to restrictions that arise from the nature of the aircraft itself.
Increasing importance of airfreight

Two major changes have taken place over recent years in many manufacturing industries
and it is due to these changes that air freight is becoming a popular choice for
transporting products internationally. The reason for this increase is:
 The growing volume of technology-based products, these products are becoming

lighter and smaller while their value is becoming greater justifying the expense of air
freight
 The second is the rapidly increasing trend in many industries towards "just-in-time" (JIT)
inventories JIT is most effective where the goods in question can be moved by air.
The benefits of JIT ordering are:
 A substantial reduction in capital requirements

 A substantial reduction in stockholding
Loading and stowing of cargo

Air cargo has to be specially prepared or modified to enable the cargo to fit into the
aircraft. The upper and lower deck configuration, mass and dimension limitations, pressure
and air temperature variations and the floor load factors must be taken into consideration
by the shipper of the cargo. All aircraft have limited carrying capacity, and loading
beyond the safety limit in terms of the mass and volume of the cargo is not permitted. The
actual limitations vary from one type of aircraft to another.
To facilitate quicker and safer loading, airline personnel group all air cargo into larger units
on pallets or containers. These are collectively known as Unit Load Devices or ULD's. ULD's
play an important part in the loading and discharging of aircraft. The floor of an aircraft is
equipped with roller beds for ease of movement of the ULD's. Since the introduction of Unit
Load Devices into the air freight industry, cargo is discharged quicker and theft and
damages have been greatly reduced.

234
Rail freight
Since South Africa's independence in 1994, rail is proving to be a reliable alternative to
road transportation, as Spoornet moves further and further into Africa. Spoornet plan to
have regular rail movements to the Democratic Republic of Congo, giving South African
exporters increased rail options to more African destinations. Not only is rail freight an
alternative solution for trade into Africa, but it is also an alternative for moving freight from
inland cities (such as Pretoria, Johannesburg, Bloemfontein, Kimberly, etc.) to the ports.
Rail freight does not have quite the reach that road freight does, as not every town is
reliably served by rail transportation. What is more, road freight can provide a 'last mile'
solution that rail freight cannot (i.e. a truck will probably still be used to get the cargo from
the railway station to and from the factory or customer's premises.
Cargo dispatched by rail can be consolidated into a rail wagon or packed into individual
containers. Transnet offer 3 and 9 metre containers. These containers are unique to rail
and road transportation and are not offered for sea freight.Nevertheless, standard sea
freight containers can also be moved by rail. Transnet divides the container freight market
into three categories, namely:
 Import traffic: the management of containers that enter through a South African port
with a domestic or over border destination.
 Export traffic: the management of containers leaving South Africa through our ports
and
 Domestic traffic: the management of containers transported within and over South
Africa's borders.
Transnet services
Transnet offers terminal services in addition to rail services. The following terminal services
are offered:
 Physical and administrative checks.
 Acceptance/delivery of the container in the interchange zone at the terminal.
 Loading/unloading of the container at the terminal interchange zone from/to a

hauler or when lifted from/placed on a rail wagon at the railhead.

235
 Conveyance between the interchange zone or railhead and the stack.
 Stacking/de-stacking.
 Handling by means of container crane and/or gantry crane as the case may be.
 Transhipment of containers emanating from and destined for foreign countries.
 Storage.
Transnet also has six major inland terminals and nineteen satellite depots that are
strategically located to link with the ports in South Africa. Each terminal, with its satellites
depots handle containers, cars and bulk traffic and are located as follows:
 City Deep (Eastcon, Kazcon),
 Belcon (Saldanha, Ashton, Dalcon),
 Deal Party (East London, George),
 Pretcon (Phalaborwa, Witbank, Pietersburg, Nelspruit, Piet Retief),
 Bayhead (Newcastle) and
 Bloemfontein (Kimberly, Maseru, De Aar, Kroonstad, Kakamas, Bethlehem).
Rail freight rates

Spoornet operates commodity-based freight rates, which identifies goods into different
categories. Manufactured or semi-manufactured goods, such as motor vehicles, these are
classified according to a higher tariff, while minerals and agricultural products such as
maize are classified according to a lower tariff grouping.
Spoornet also offers, contract rates, based on truckloads, or trainload rates, these rates
are extremely negotiable. Goods delivered by rail move from one station to another on
the presentation of a FTO - Freight Transit Order.
Road freight
Road freight (also sometimes referred to as 'road haulage' or 'road transport') is often the
most effective mode of transport for Southern African countries, particularly when
exporting to the land-locked countries of Zambia, Zimbabwe, Malawi. Road haulage also

236
operates between South Africa and Swaziland, Lesotho, Botswana and certain parts of
Mozambique, Angola, and the Democratic Republic of Congo, Tanzania and Namibia.
Not only is road freight a consideration for exports into Africa, but also a large portion of
exports from land-locked cities such as Johannesburg, Kimberly, Pretoria, etc. are moved
down to the ports (Durban, Cape Town, Port Elizabeth, etc.) by road. Even if you are
based near a port, you are likely to use road trasnportation to move your goods from your
factory to the quayside. Thus road transportation may form part of your transportation
considerations, even if you are shipping your goods by sea. Local companies using air
freight to get their goods to foreign markets are similarly likely to use road transportation to
move their products from the factory to the airport. You should also not forget that road
haulage may form a significant part of your transportation in countries in Europe, the US,
Australia, etc., as the goods are moved from the port of discharge to your final
destination. Thus road freight is likely to form an integral part of your transportation and
logistical options.
Road haulier services
Road hauliers offer the following services:
 On a door-to-door basis, where the road haulier collects a consignment of goods

from an exporter's premises, and transports the goods to their final destination in a
neighbouring country.
 On a depot-to-depot basis with support facilities for collection at the point of origin
and delivery to the country of destination.
Road transport quality system

In terms of the Road Transport Quality System (RTQS), South African road hauliers will be
strictly monitored. This is achieved through the issuance of permits. Permits will not be
issued or renewed if a haulier is found to be overloading and/or operating sub-standard
vehicles. Irrespective of the type of cargo road hauliers carry, they are required to obtain
a local transport permit for the purpose of transporting goods within the country of
destination as well as those countries through which the vehicle may travel.

237
Road freight into Africa

In some African countries, the local road traffic authorities are reluctant to issue transport
permits to hauliers not based in that country. This can lead to transshipment problems and
possible delays. In order to overcome these problems, some South African hauliers have
set up branch offices in countries where such restrictions are enforced. These branch
offices facilitate more effective communication between the exporter in South Africa and
the haulier in the foreign country.
Factors influencing the choice of road haulage for export

The decision to use a road haulier for the whole or part of the transit, to a foreign
destination is influenced by a number of factors:
Speed
The transit time for over-the-border consignments can be shorter by road than by rail (or
sometimes even by air). This is because the road haulier controls the delivery of the goods
right up to the final destination (which may be near the border and far from the main
airport), whereas goods transported by rail can be delayed when railway trucks are
handed over from one railway authority to another.
Convenience of distribution
When goods are being exported to a neighbouring country, a road haulage service may
provide either direct delivery to the importer or to a convenient point nearby.
Freight rates
Freight rates in respect of road freight rates are generally lower than those rates offered
for carriage by air. However consideration should be given to the higher risk which cargo
is exposed to when freighting goods by road, and, as an example of this, it is worth noting
that insurance cover for war and riots, is not available when goods are dispatched by
road or rail freight. Road freight movements are prepaid, as road hauliers are reluctant to
deliver cargo into an African country without having the freight prepaid in South Africa.

238
VAT and customs requirements for road freight

There are many delays associated with customs clearance of goods at the border posts.
To avoid unnecessary delays, the exporter or his freight forwarder must ensure that all the
necessary documentation has been supplied and accurately completed, to ensure ease
of movement through the border post.
The goods moving into African countries can be cleared at the closest customs office at
their place of origin in South Africa. The following documents are required:
 A customs-authorised bill of entry
 A commercial invoice
Unlike ocean or airfreight, there is no standard transport document for road haulage.
Road hauliers normally design their own waybills, which resemble road manifests. Customs
and Excise require a border stamped copy of the bill of entry as proof of export. If the
exporter cannot ensure receipt of this copy he must charge VAT to the importer, and this
amount would be stated on the commercial invoice.
Import permits
In many African countries there are severe foreign exchange shortages and import
permits have to be obtained by the importer prior to the importation of goods. It is the
responsibility of the exporter to ensure that the import permit will be available at the
border at the time of customs clearance. The import permit number should be stated on
all necessary documents these are:
 Commercial Invoice
 Road consignment note
 Packing list
Containerisation
Containerisation can be defined as a system of intermodal [The term intermodal means
that the container can be loaded on different means (or modes) of transport - for
example, ships, aircraft, trains, trucks, etc. - with the minimum of effort and without have to

239
unpack and repack the container.] freight and cargo transport using standard ISO
containers (known as Shipping Containers or Isotainers) that can be loaded and sealed
intact onto container ships, railroad cars, planes and trucks. The idea of using standard
containers that could be easily and quickly packed and loaded onto like 'lego blocks'
onto ships, aircraft, trucks and trains, resulted in a huge reduction in port handling costs,
contribute significantly to lower freight charges, increased cargo security and, in turn,
boosted trade flows.
The use of containers began in the early 1950's with purpose-built container ships being
launched in Denmark in 1951. During the first twenty years of growth containerization
meant using completely different, and incompatible, container sizes and corner fittings
from one country to another. There were dozens of incompatible container systems used
throughout the world. The standard sizes and fitting and reinforcement norms that exist
now evolved out of a series of compromises between international shipping companies,
European railroads, U.S. railroads, and U.S. trucking companies. The bulk of the discussions
occurred in the late 1960s and the first draft of the resulting ISO standards were prepared
for publication in 1970.
Over the past fifty years, the use of containers have revolutionised freight handling and
helped to grow international trade. Almost every manufactured product consumed today
spends some time in a container. Today, approximately 90% of non-bulk cargo worldwide
moves by containers stacked on transport ships. As of 2005, some 18 million total
containers make over 200 million trips per year.
The advantages of containers are:
 Increased efficiency
 Greater security
 Economical shipping costs
Container dimensions
Even though the International Standards Organisation (ISO) has approved certain external
dimensions of general-purpose containers, many additional dimensions exist. Essentially

240
there are five main lengths of containers; they are: 20 ft, 40 ft, 45 ft, 48 ft and 53 ft (note
that container sizes are often still given in feet and inches and refer to the outside
dimensions of the container). Besides for these lengths, there are two common heights,
namely 8 ft 6 in and 9 ft 6 in (the last-mentioned is referred to as a high-cube container).
Most of these containers are 8 ft wide, although the 48 ft and 53 ft containers can be 8 ft 6
in in width. The 48 ft and 53 ft containers are not used in shipping and are generally
confined to truck and rail use in the US. The 20 ft, 40 ft and 45 ft containers are common in
trade throughout the world, with the first two being the most common. The dimensions of
these last-mentioned containers are provided in the table below:
Length Width Height

Type of container Carrying capacity
(internal) (internal) (internal)
5,90 m (19' 2,34 m (7' 2,38 m (7' 21 640 kg (47 716 lbs)
6m/20ft GP container
3") ( 7") 8") maximum weight
12,01 m 2,33 m (7' 2,38 m (7' 26 500 kg (58 433 lbs)

12m/40Ft GP Container
(39' 3") 7") 8") maximum weight
12m/40Ft GP High- 12,01 m 2,33 m (7' 2,69 m (8' 26 330 kg (58 058 lbs)
Cube Container (39' 3") 7") 8") maximum weight
13,58 m 2,35 m (7' 2,69 m (8' 28 390 kg (62 589 lbs)

14M/45Ft GP Container
(44' 6") 7") 8") maximum weight
Note: Variations can be found between series and makes.
Twenty-foot equivalent units

This is a term you need to understand and that you will come across often in your
exporting ventures. Container capacity is measured in twenty-foot equivalent units (TEU, or
sometimes teu). A twenty-foot equivalent unit is a measure of containerised cargo
capacity equal to one standard 20 ft (length) × 8 ft (width) × 8 ft 6 in (height) container. In

241
metric units this is 6.10 m (length) × 2.44 m (width) × 2.59 m (height), or approximately 39
m³.
Most containers today are of the 40-ft (12.2 m) variety and are known as 40-foot
containers. This is equivalent to 2 TEU. 45-foot (13.7 m) containers are also designated 2
TEU. Two TEUs are equivalent to one forty-foot equivalent unit (FEU). High cube containers
have a height of 9 ft 6 in (2.9 m), while half-height containers, used for heavy loads, have
a height of 4 ft 3 in (1.3 m). When converting containers to TEUs, the height of the
containers typically is not considered.
The maximum gross mass for a 20-ft dry cargo container is 24,000 kg, and for a 40-ft, (inc.
the 2.87 m (9 ft 5 in) high cube container), it is 30,480 kg. Allowing for the tare mass of the
container, the maximum payload mass is there reduced to approximately 21,600 kg for 20-
ft, and 26,500 kg for 40-ft containers.
Other types of containers

Various container types are available for different needs:
 General purpose dry van for boxes, cartons, cases, sacks, bales, pallets, drums in
standard, high or half height
 High cube palletwide containers for europallet compatibility

242
 Temperature controlled from -25°c to +25°c reefer
 Open top bulktainers for bulk minerals, heavy machinery
 Open side for loading oversize pallet
 Flushfolding flat-rack containers for heavy and bulky semi-finished goods, out of
gauge cargo
 Platform or bolster for barrels and drums, crates, cable drums, out of gauge cargo,
machinery, and processed timber
 Ventilated containers for organic products requiring ventilation
 Tank containers for bulk liquids and dangerous goods
 Rolling floor for difficult to handle cargo
 Gas bottle
 Generator
 Collapsible ISO
 Swapbody
Container and seal numbers

All containers have a four letter and a seven number identification, which is unique to that
container. When receiving a container for packing the exporter should always record this
number for documentation purposes.
Example of a container number: MEAU 993982/5.
The container seal is provided by the shipping lines and serves as a lock for securing the
container. Each seal has a unique number and the shipper should also record this number
on all documentation pertinent to the shipment. Upon arrival of the container at the final
destination, should the seal number not correspond with the documentation, the importer
should immediately notify the shipping line and the marine insurance company.

243
Break bulk cargo
In shipping, break bulk cargo or general cargo is

a term that covers a great variety of goods that
must be loaded individually, and not in
intermodal containers nor in bulk as with oil or
grain.
Ships that carry this sort of cargo are often

called general cargo ships. The term break bulk
derives from the phrase breaking bulk — the extraction of a portion of the cargo of a ship
or the beginning of the unloading process from the ship's holds.
These goods may be in Shipping containers such as bags, boxes, crates, drums or barrels.
Unit loads of items secured to a pallet or skid or skid are also used.
A break-in-bulk point is a place where goods are transferred from one mode of transport
to another, for example the docks where goods transfer from ship to truck.
Break bulk was the most common form of cargo for most of the history of shipping. Since
the late 1960s the volume of break bulk cargo has declined dramatically worldwide as
containerisation has grown. Moving cargo on and off ship in containers is much more
efficient, allowing ships to spend less time in port. Break bulk cargo also suffered from
greater theft and damage.
A typical general cargo ship. The Gladstone Star built in 1957 and scrapped in 1982.

244
Although cargo of this sort can be delivered straight from a truck or train onto a ship the
most common way is for the cargo to be delivered to the dock in advance of the arrival
of the ship and for the cargo to be stored in warehouses. When the ship arrives the cargo
is then taken from the warehouse to the quay and then lifted on board by either the ship's
gear or by the dockside cranes. The discharge of the ship is the reverse of the loading
operation.
Loading and discharging by break bulk is labour intensive. The cargo is brought to the
quay next to the ship and then each individual item is lifted on board separately. Some
items such as sacks or bags can be loaded in batches by using a sling or cargo net and
others such as cartons can be loaded onto trays before being lifted on board. Once on
board each item must be stowed separately.
Before any loading takes place any signs of the previous cargo should be removed. The
holds should be swept, washed if necessary and any damage to them repaired. Dunnage
may be laid ready for the cargo or may just be put in bundles ready for the stevedores to
lay out as the cargo is loaded.
There are many sorts of break bulk cargo but amongst them are:
Bagged cargo
Should be stowed on double dunnage and kept clear of the ship's sides and bulkheads.
Bags should be kept away from pillars and stanchions by covering with matting or
waterproof paper.
Baled goods
These should be stowed on single dunnage at least 50mm thick. The bales should be clean
with all the bands intact. Stained or oily bales should be rejected. All fibres can absorb oil
and are liable to spontaneous combustion. As a result they should be kept clear of any
new paintwork. Bales close to the deckhead should be covered to prevent damage by
dripping sweat.

245
Barrels and casks

Wooden barrels should be stowed on
their sides on "beds" of dunnage which
keeps the middle of the side (the bilge)
off the deck and they should be stowed
with the bung at the top. To prevent
movement wedges called quoins are put
in on top of the "beds". Barrels should be
stowed fore and aft and not athwart
ships. Once the first tier has been loaded
the next tier of barrels fits into the hollows between the barrels, this is known as stowing
"bilge and cantline".
Corrugated boxes
Corrugated boxes should be stowed on a good layer of dunnage and kept clear of any
moisture. Weather resistant grades of corrugated fibreboard are available. They should
not be overstowed with anything other than similar boxes. They are frequently loaded on
pallets to form a unit load; if so the slings that are used to load the cargo are frequently
left on to facilitate discharge.
Wooden shipping containers

Wooden boxes or crates should be stowed on double dunnage in the holds and single
dunnage in the 'tween decks. Heavy boxes should be given bottom stowage. The loading
slings are often left on to aid discharge.
Drums
Metal drums should be stowed on end with dunnage between tiers.
Paper reels
Reels or rolls are generally stowed on their sides but care must be taken to make sure they
are not crushed.

246
Cars
These are lifted on board and then secured using lashings. A great deal of care should be
taken to make sure they do not get damaged. Vehicles must also be prepared by
ensuring potentially hazardous liquids (gasoline, etc.) have been removed. (This is in
contrast to Ro-ro (Roll on-roll off) vessels where vehicles are driven on and off the ship on
their own wheels.)
Steel girders
Any long heavy item should be stowed fore and aft. If they are stowed athwart ships they
are liable to shift if the ship rolls heavily and pierce the side of the ship.
Bulk cargo
Bulk cargo is commodity cargo that is
transported unpackaged in large
quantities. This cargo is usually dropped or
poured, with a spout or shovel bucket, as
a liquid or as a mass of relatively small
solids (e.g. grain or coal), into
 a bulk carrier ship's hold,
 railroad car,
 or tanker truck/trailer body.
Dry bulk cargo ("dry" trades)
 Dry bulk cargo includes:
 Coal
 Grain, such as wheat, maize, rice,

barley, oats, sorghum, soy beans,
etc.
 Irons
 Wood chips

247
 Cement
 Bulk minerals such as sand, gravel, copper, salt
 Chemicals: fertiliser, plastic granules and pellets, etc.
 Dry edibles such as flour, seeds, peanuts, raw or refined sugar and so on
Iron ore pellets
Liquid bulk cargo ("wet" trades)

Non edible and dangerous liquids
 Petroleum
 Liquefied natural gas (LNG)
 Dangerous chemicals
Liquid edibles and non dangerous liquids
 Vegetable oil
 Cooking oil
 Fruit juices
 Milk
 Zinc ash
Activity 6

248
References
www.wikipedia.com
www.scribd.com
www.state.gov
www.southafrica.info
www.africa-business.com
www.info.gov.za
http://www.exporthelp.co.za

249

FH3 - Learner Guide - Module 1

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NATIONAL CERTIFICATE

NC: FREIGHT HANDLING NQF LEVEL 3

Notes to the Learner................................................................................................... 9

The learning approach ............................................................................................. 10

Appeals Process ................................................................................................... 16

Qualification Structure .............................................................................................. 17

Learning Pathway ................................................................................................. 17

Using the Learner Guide .......................................................................................... 19

About this Module:.................................................................................................... 21

UTILISE RESOURCES ............................................................................................ 23

Manage resources ................................................................................................ 23

IDENTIFY AND APPLY GOALS .............................................................................. 27

Goals and objectives ............................................................................................ 27

The difference between a goal and an objective ............................................... 28

Setting objectives .............................................................................................. 29

General rules when writing goals and objectives: ............................................. 31

Action plans .......................................................................................................... 32

CUSTOMER SERVICE ............................................................................................ 34

Customer care ...................................................................................................... 34

What is a customer? ......................................................................................... 35

What customers expect ..................................................................................... 36

What customers want ........................................................................................ 37

Learning Exchange (Pty) Ltd

What customers hate ........................................................................................ 38

Key Questions Pertaining To Customer Service ................................................... 40

Who is responsible for customer satisfaction? .................................................. 42

The customer has a wider choice...................................................................... 42

Internal and External Customers .......................................................................... 43

Customers and stakeholders ............................................................................ 44

Identify customer service needs ........................................................................ 46

The Cost of Poor Service ...................................................................................... 46

BUSINESS SOLUTIONS ......................................................................................... 48

Business types ..................................................................................................... 48

Cost saving within a business ........................................................................... 53

Income from Sales ............................................................................................ 54

What is profit? ................................................................................................... 54

What are profits used for? ................................................................................. 56

How the business manages the money ............................................................ 57

Cash flow .......................................................................................................... 61

Supply and demand .............................................................................................. 61

Work Ethic ............................................................................................................ 63

General Code Of Ethics And Conduct............................................................... 63

A definition of ethics .......................................................................................... 67

Business ethics ................................................................................................. 68

Learning Exchange (Pty) Ltd

Unethical Practices in the workplace................................................................. 70

Good Work Ethics ............................................................................................. 71

Cost Of Poor Ethics........................................................................................... 72

Contributing to an ethical work environment: .................................................... 72

Decision Making ................................................................................................... 74

Define The Problem or goal .............................................................................. 75

Collect facts to meet the requirements of the problem ...................................... 75

Verify the information ........................................................................................ 75

Analyse The Facts or problem .......................................................................... 76

Decision making pitfalls to avoid ....................................................................... 79

Implement the solution ...................................................................................... 80

Monitor implementation ..................................................................................... 81

Review the solution ........................................................................................... 82

SUPPLY AND DEMAND .......................................................................................... 84

Opportunity Cost Equation ................................................................................ 88

ABSOLUTE AND COMPARATIVE ADVANTAGE.................................................... 92

Risks of international trade ................................................................................ 93