Dunnage

NET, TARE, GROSS WEIGHT

The net weight of cargo is the weight of the object itself. The tare weight is the weight of the thing that the object will be placed into. The gross weight is the combined weight of the net and the tare.

For example:A small engine has a net weight of 700 kgs. This means that unpacked the machine weighs 700 kgs. The protective packaging (a case perhaps) that the machine is loaded into has a tare weight of 100 kgs, so the gross weight of the whole package is now 800 kgs. But, once packed in this manner, the closed case becomes the unit of cargo so it is now said to have a net weight of 800 kgs.

If you look on the doors of a container you will see a plate (it might just be decals) that declares the tare weight of the container (i.e. its weight empty of cargo) and its gross weight (i.e. the maximum combined weight that the floors and or corners will carry. Equally, look at the plate on a trailer or truck ?again there will be a tare weight and a gross weight declared.

Material

Standby Credit

Banks often refer to the various ways in which payment can be effected as being payment instruments? The Documentary Credit (refer definition 26) is a well-known payment instrument? But it does not exist in a single form. There are many variations to the Credit, one of which is the standby? Credit.

What this means is that the buyer (the applicant? sets up the credit for the benefit of the seller (the beneficiary? but, unlike the normal Credit, the Seller does not get paid through the instrument itself. This is to say that the buyer will make the payment to the Seller in an agreed amount at an agreed time through ‘nformal banking effectively an open account relationship. However and crucially should the buyer fail to meet the pen obligation to pay, the seller may then get paid through the credit.

The standby credit therefore functions like an underlying insurance against default in payment. The seller has to be cautious that the amount outstanding to them does not exceed the limit of the credit. The buyer has to be cautious that the seller does not get paid twice.

Despite these cautions, the Standby Credit is a good instrument for parties who wish to experiment with an Open Account relationship.

This is a reference to transactions where the Seller is giving extended credit to the Buyer, at a premium. Where this works well is in instances where the Seller has a much lower Bank lending rate than the Buyer has in the destination country.

For example:

The Seller will quote a price of (say) $10,000. This price is good provided that the Buyer pays on a 30 day account.

The Buyer, however, requires 180 days. The Seller then re-quotes the price as $10,000 plus 2% as a insurance fee. This is the premium.

The Seller may be able to borrow money from their bankers at (say) 6% per year. (Thus for 180 days they will pay 3%, or half the annual rate).

 The Buyer's bank lending rate might be 24% per year. So if the Seller charges the $10,000 plus 6% for a 180-day account, the Buyer has arrowed money at half the rate they would be offered locally. (The local rate is 24%, so for 180 days it would be 12%: The seller is only charging 6% for [effectively] a loan over the same period.) Where this becomes very lucrative is in transactions where the Buyer can convert the cargo into cash? this is to say that the goods can be sold on arrival? The Buyer may now be in a position to place these funds on deposit in the destination bank (at a relatively high interest rate). When payment is due, the Seller receives a payment equal to the cost of the goods, plus the premium ?which the Buyer is paying for out of the interest earned at the destination bank (with the differential being profit to the Buyer).

Another example of this type of transaction would involve the use of Bills of Exchange (refer definition 191 for a further discussion on the use of the Bill of Exchange). Through this device, the Seller can offer the credit of 180 days, using the signed Exchange document as a trading instrument i.e. they can then sell it to a Bank for a discounted price. The amount of the discount becomes the premium? attached to the 180 day-credit arrangement and so on. 

Buyers who use this type of Supplier (i.e. Seller) Credit should be familiar with the local Customs and Excise regulations with regard to valuation. It is common that interest charged in the manner of the first example, may be deducted from the Sales Price prior to calculating Duties and Taxes. Note that if this deduction is possible and the Seller builds the interest into the price rather than showing it separately, the Buyer could end up overpaying duties (see also definition 220).

¡@

Phytosanitary

A Sanitary or Phytosanitary inspection is conducted to verify the health, hygiene, freedom from disease or insect pests of animal, plant or fish products. The Authority conducting the inspection will (on finding the goods in order) issue a Certificate that will provide basic details about the means of movement of that product. The Authority could be the Health or Veterinary Authority of a country? It depends on the product and the country in question, although they are most likely to be government agencies.

The inspection of animal, plant and fish products and the certificate issued in the process, are recognized internationally by governments and commerce. Normally, the certificate would be issued by one country health authority to advise another that a given product meets the exporting country standards and regulations. The certificate in question becomes part of the compulsory import paperwork in the country of destination.

The phyto certificate is part of a system that includes health, phytosanitary and veterinary certification, including trade in animals and animal products and or trade in plants and plant material. Only one certificate is issued for goods exported from a single place to another single place although a certificate may cover several items.

Floor Value

You may come across this expression when dealing with pre-shipment inspections, more specifically inspections mandated by the import state.

Pre-Shipment inspections (refer definition 68) are sometimes required by the import government, to regulate the quality of imported goods and the consequential outflow of foreign exchange to pay for the imports. However, not all imports may fall into this category.

The cost of inspection is borne by the import government and ?dependant on the services the Inspection Company have to undertake ?it can be a costly operation. In an effort to reduce these costs, values are established by the import government, below which inspection is not required. These starting points are referred to as ‘fflour values? Anything below the floor value may be imported without the need for inspection prior to shipment ?whereas anything with a value above the floor value must be inspected and so on.

The caution is that Floor Values are not constant between countries (i.e. each country can establish its own value) and may change without notice. The FOB value of the goods is taken for this process. Note that the use of the expression FOB in this context should not be confused with the sales term FOB (refer definition 74), but rather it is a customs expression used to describe the value of the goods at a given point of export from the origin country. This point of export and how to calculate values at that point ?are determined by the WCO (World Customs Organization).

                                                    Revolving Credit

Banks often refer to the various ways in which payment can be effected as being payment instruments? The Documentary Credit (refer definition 26) is a well known payment instrument? but it does not exist in a single form. There are many variations to the Credit, one of which is a revolving credit.

This is a Credit issued in the normal manner for a specific amount. However, as the Seller sends cargo and draws a payment against the credit, the Credit also gets doped up? By the Buyer at the other end each time they receive cargo or each time a period is passed e.g. per month. This allows for on-going business between two parties under one continual credit, rather than the parties having to set up new credits each time.

For example, the orders $120,000 of cargo (roughly $10,000 per month) but only sets up a revolving credit for $10,000 for the benefit of anticipates to produce roughly $10,000 per month, but it could fluctuate and in fact only ships $5000 worth of cargo in the first month - and draws a corresponding payment from the credit. Next month, adds another $10000 to the Credit meaning that can now send the second order through of (up to) $15000. There are many variations of this type of Credit some of which would involve a carry over of $5000 in our example, others do not. Here, the $10,000 represents the value per period (per month) that wishes to order, and provided that the annual order does not exceed $120,000 will receive cargo to the total value as it is produced.

BACK TO BACK CREDIT

Banks often refer to the various ways in which payment can be effected as being payment instruments? The Documentary Credit (refer definition 26) is a well known payment instrument? but it does not exist in a single form. There are many variations to the Credit, one of which is the back-to-Back?Credit. To explain the usage of this instrument, we will use the following example.A Company sells goods to B Company in turn sells the goods to C? All three are in different countries. Company A will profit by having bought the goods for x amount, on-selling them to Company B for C. We can also extend the example to say that it is strategically important for A that B and C, remain unaware of each other. 

Company A now requests Company B ?to set up a Documentary Credit in their favour. Once it is opened, B then opens one in favour of C This second Credit must match the first in all matters except names and values. Note that the security offered to A bank to open up the credit in favour of B is, of course, the irrevocable Credit C has been offered by A The payment to A from B must be at least equal to C but will most likely be less than ?the payment A has to make to C.

So, the Credits work back-to-back with B in the middle. Note that in our example, A wished to keep B and C unconnected. As such the documents called for under the credits must be controlled so that B is able to present documents on the second credit that do not originate from the first or at least originate in such a manner as to obscure the existence of C.

DOCUMENTS - MASTER V HOUSE

Every International Movement requires a Master Transport Document. This is the document issued by the Actual Carrier. The actual? Carrier in this context will be the actual vessel or aircraft/truck/train owner or that owner appointed agent or representative. This transport document will serve a variety of functions amongst which will be its role as a record of the terms and conditions of carriage ?or a reference to a set of such terms that will be applied to the relationship between the merchant and the carrier. 

The merchant may be the Seller etc ?this party is clearly identified on the transport document, normally under the title of shipper? (refer definition 60 for more on this point). 

When the Buyer and Seller are working without a Freight Forwarder (or NVO refer definition 71) the Master Transport document is issued directly to the shipper by the Carrier. Note that under certain conditions, even when the Seller is working with a Forwarder the Carrier Document shows the Seller as the shipper. However it is more often the case that when a Freight Forwarder is involved, the Carrier issues the Master Transport Document to the Forwarder directly, and with the Forwarder shown as the shipper on that Master document. 

Now the Forwarder in turn issues their own Transport Document to the actual Seller/Shipper. This Forwarder's document is referred to as a House document. 

It mainly allows Forwarders to buy bulk space for A and sell it off in smaller units to traders for B and it is an integral device in running a groupage or consolidation service (refer definitions 28 and 58).

FOREIGN EXCHANGE

This is often abbreviated to zorex? and primarily and basically it means foreign money? Note that in addition to actual paper currency and coins a country holdings of  foreign exchange? Also includes other bank assets and liabilities payable in foreign currencies ? drafts and exchange documents etc. The expression is also used to describe the actual trading in (exchanging of) a foreign currency in relation to another currency. 

The various rates at which currencies are exchanged are established and quoted for currencies based on a combination demand, supply and stability of the currency in question. Some countries have a Fixed Rate of Exchange where the government in question, in relation to the US dollar, gold or another currency (or perhaps SDR's ?refer definition 62) sets an exchange rate. This fixed rate remains in effect as long as that government is willing and/or able to buy or sell other currencies with its own, at the fixed rate. 

Some countries operate a Flexible Rate of Exchange. This involves a rate of exchange being established by the government as above, but unlike the fixed rate the flexible rate is subject to frequent changes. The changes are determined by market forces, provided that they remain within certain parameters made up from various maximum highs and lows of the US dollar or another currency (or gold, SDR etc).Countries that operate their currency under a Floating Rate work with a rate of exchange that is solely determined by market forces with limitation of highs and lows, no association to gold, SDR etc.

A country official Foreign Exchange Reserves are the reserves held and/or maintained by a central bank. Normally this will extend to include gold and easily traded currencies. 

COMMERCIAL INVOICE LAYOUT

As a consequence of the Sale, the Seller will raise an invoice on the Buyer. This invoice is as central to the contract as the cargo is (at least, the payment of the invoice is). It has meaning to the bank process, the customs process and the insurance process as well as a whole host of other applications.

Unfortunately, given that it is such an important document, there is no universal standard as to what it should or should not reflect, the words it must use and the way is should be laid out, etc. There have been some very good efforts at standard isation, but lacking an international convention on the subject, Sellers and Buyers are free to do as they please and published standards are only optional guidelines. (There may however be domestic requirements laid down by either the Seller or (more likely) the Buyer, customs and excise officials.)

If there is a Sales Contract between the Seller and Buyer (refer definitions 206,210,214,217 etc) then the Invoice becomes a fairly simple device. It only starts to get unmanageable when the Seller and Buyer are using it as evidence of their contract too ?regrettably a common position despite the risk.

Assuming that there is a contract in place, the Invoice should reflect the following: 
1. The names of the Buyer and the Seller. The Seller's detail is obviously a printing issue, but the Buyer must be uniquely added and must be the same party as described in the Sales Contract. 

2. It must be dated and uniquely numbered. It may well have to carry a specific statement such as LAX Invoice? dependant on the local revenue laws applicable in the Seller's country. 

3. It need not state the terms of payment if the payment terms are agreed within the Sales Contract, but to re-state the terms on the invoice (provided that this does not contradict the terms in the Sales Contract) is advisable. 

4. Equally, it need not state the method of payment if the payment method is also agreed within the Sales Contract. However, to re-state the method of payment on the invoice, provided that this is consistent with the method laid down in Sales Contract, is advisable.

5. A description of the goods involved ?consistent with the requirements of Customs and Excise in both the countries of origin and destination, and of course consistent with the Sales Contract too. 

6. The amount due and the commercial term applicable to that price. The commercial terms will most likely be an abbreviation such as EXW, CIP, FCA etc (refer to the previous and extensive definitions under Incoterms and similar concepts covered in earlier advises)

The Buyer might also have a need for the price to be broken down into its component parts, in line with the determination of value for duty purposes laid down by the Customs and Excise in the Buyer's country. Consider this example: 

The sale is for $10,000 CIP (to a named place in the Buyer's country). Duty may be due on the goods based on the job value of the cargo. Here, the expression job is the name given by the WCO (World Customs Organisation) to a specific point in the origin country ?for example it might be the value of the cargo at the moment of export through the first international customs point. Thus the job value may only be $8000, with the balance of $2000 representing the international freight, which may be deducted and thus reducing the Buyer's duty payment. Further, the Buyer may need the Insurance premium shown separately as this too need not form part of the duty calculation ?and there might be a finance fee that can be similarly deducted. The body of the invoice may then read: 

Fob Value            $ 6500.00
Insurance            $   500.00
Finance Fee          $ 1000.00
Freight Charges      $ 2000.00
Cost                           
CIP                  $10,000.00

The Buyer will now be taxed on the value of $6500 and not $10,000. Note that in the absence of the Seller’s breakdown, Customs may well work on averages, which would mean the deduction of the average freight, the average insurance premium and so on. These averages are not normally designed to reduce the Buyer's duty payments any more than is absolutely necessary? but they do provide guidance to Customs officials as to what the Seller can reasonably show for freight, insurance etc 

¡@

Full Liner Terms

This is a qualification to a seafreight rate and should not be confused with, or used as, a term of sale. It may also be expressed LTL.

What is being described is a seafreight rate that includes both the cost of loading the cargo into the ship as well as the costs for discharging the cargo from the ship. The reference to Liner?in this expression is to convey that the loading and discharge arrangements are similar to those found under a liner seafreight rate ? i.e. liner freight rates normally include loading and discharge costs, or at least they used to. Note that these days liner freight rates normally exclude the costs of discharge (a development which only further aggravates the problem of understanding).

 It is important to note that this inclusive arrangement is only as good as the custom of the port? This is to say that some or all of the costs associated with the loading or discharge may in actual fact be excluded from the freight rate, dependant on what is customary in the port in question.

 So, be cautious when using this type of term? investigate and establish what is and what is not in the price rather than assuming that a universal definition applies.

Clean Report of Findings

This is often expressed as clean report?or TRF? The pre-shipment inspection system (refer definition 68) is a mechanism used by buyers and/or their governments to verify the quality, quantity and value of cargo being supplied by the seller.  

The Clean Report of Findings is the document issued by the inspection service to their principal (either the buyer or the buyer of government ?it depends on which of the two is paying the inspection company). It is quite an important document in that it is normally one half of the mechanism needed to trigger payment.The Inspection Company will normally issue the seller with proof that the CRF has been issued, and this Proof?is normally required under the terms of a Documentary Credit. 

So, if the goods are inspected and found to be irregular, the seller will not have the required document to obtain payment.

¡@

Ocean Definition

FAV

This is a common abbreviation to indicate the first Available Vessel? Many Buyers use this short-hand to impress the urgent? nature of a shipment on the seller. However, it is not guaranteed that the first vessel to sail is also the first vessel to arrive, and the urgent? Buyer is normally more interested in the timing of arrival rather than departure.

This possibility becomes more likely when the vessel is calling at multiple ports, which allow for variations in the sequence at which the vessel docks at those ports. These variable sequences are referred to as the vessel’s ‘port rotation?

For example : Cargo is to move from port A to port E. Port A is in a geographic area close to ports B, C & D, whereas port E is at the other end of the deep sea voyage, close to ports F & G. A vessel loading in the sequence D,C, B and A which then discharges in the sequence E, F and G, will provide a faster service from A to E than the same vessel loading in the sequence A to D and discharging in the sequence G to E. This is despite the fact that the slower vessel is perhaps the First Available Vessel for the Seller to load the cargo on. If the Buyer wishes to impose a performance standard on the seller, it is better achieved with actual dates and time parameters than with generic expressions such as FAV, urgent? or soonest? etc.

Contracts of Carriage

It is a common misuse of language to refer to the transport document (Bill of Lading, Airway bill, Consignment note etc) as being the 'contract of carriage? Rather, the tangible document is ‘evidence? of the contract of carriage, with the actual contract having been formed at a common law level of the offer and acceptance?

The consideration is that at the level of offer and acceptance? a contract requires absolute fulfilment ?no gray areas, no limitations etc. Therefore, the Carrier issues the transport document to both evidence the contact entered into with the shipper and to simultaneously limit their absolute liabilities by way of the terms and conditions incorporated into the document either directly or by reference.

Remember that contracts are contracts because of what they do, rather than because of what they are called, and you must exercise caution so as to avoid entering contracts accidentally ?in this refer to the condition of Dead Freight, where the shipper is held liable under the contract?although no document of carriage might have yet been issued

Port of Distress

Under some common insurance contracts (the institute of cargo clauses B & C ?refer definition 158), the insured is covered against loss or damage arising that can be reasonably attributable to the cargo having discharged at a port of distress.Note that it is a condition that the cargo is discharged from the vessel. There is no claim if the vessel calls at the port but the cargo does not discharge. However should it discharge, the indemnity from the underwriter extends to loss and/or damage to the goods arising from the discharge and the period while the cargo is detained in that port, as well as the discharge expenses.

The reasons why the vessel went to the Port of distress? in the first place must be specific ?there is a lot in the detail. By diverting the ship as a consequence of a medical emergency, or to protect the vessel from severe weather conditions or for emergency repairs would be some actions that would qualify the cargo owners claim should the need arise.

Container Numbering

The marks and numbers of a sea freight container are quite specific. The four letter alpha prefix indicates the owner code ?the first three are registered with the International Container Bureau while the fourth is standardised to ‘U?(indicating that the unit is built to ISO standards)

The first one to four numbers after this alpha prefix may be used by the owner to indicate the container type or some of its characteristics (such as size and materials used in construction), then again they may just be numbers to indicate the container as a unique item. The six numbers after the alpha prefix are allocated by the owner but the seventh ?the check digit ?is allocated by way of a predetermined formula as follows:

Firstly, numerical equivalents are allocated to the four letters prefixing the container number. These equivalents begin at 10 for A, and 12 for B, 13 for C etc ?note that they do not use the number 11 or any multiples of 11. (Z equals 38)With the letters now as numbers and the 6 numbers of the container, you have a sequence of 10 numbers. Each of these is then multiplied, beginning with the first number, which is multiplied by 1, the second number is then multiplied by 2, the third by 4, doubling up each time etc so that the tenth number is multiplied by 512. The totals of each multiplication are then added together and divided by 11.

There will be a remainder from this division, which will be somewhere between 1 and 10, and that remainder becomes the check digit (with 10 being the check digit 0)

Avoidance

This is the name given to the option or right of one of the contracting parties to render a contract void. This is to say that the Contract will not be cancelled but rather it will have the status of never having existed.

Note the very important distinction that an avoided contract is not the same as a cancelled one. The cancellation of a contact is sometimes necessary but its avoidance would require many factors to be in place, and avoidance is not entered into lightly. Mistakes made in forming the contract are often common grounds to avoid the contract although none of the opportunities for avoidance stand if the party was grossly negligent in committing the mistake or if the mistake related to a matter in which the risk of mistake was assumed.

Door to Door

You may come across this term expressed “hhouse to house? or warehouse to warehouse? etc. The definition itself depends on exactly whom you are talking to at the time.  Essentially, it is an attempt to express one of two possible concepts, either the physical movement of cargo from the point of manufacture to the point of end usage or both the physical and administrative control of the cargo during movement between those two points.

For example, a shipping line may be asked to place an empty container at the Seller's warehouse, then to ship it as an FCL (Refer definition 22) to the destination. On arrival, the Full Container will be delivered to the Buyer's warehouse; they will unpack and return the empty container to the shipping line. The shipping line will refer to this transaction as door to door? (or another similar expression as given above). The transport document would be endorsed with the service indicator (refer definition 52) FCL/FCL or similar.  However, a freight forwarder would argue that just moving the cargo is not enough. The forwarder would undertake the same physical actions as the line, but in the above example would also be able to add, export and import customs clearance, storage facilities, advice on duties and taxes, tracking and tracing of the order before production. And they could add insurance cover if required. This, they would claim is a ‘true? door-to-door service.

The Logistics Company would argue that this extended service is not enough.  The logistics company would undertake the work of the forwarder but would also add collation of goods from secondary suppliers in the origin process (referred to sometimes as Supply chain management