Difference between Demurrage and Detention in import with example

Define Demurrage & Detention in a simple language with Example.

Demurrage and detention both refer to fees incurred by importers and exporters alike when containers are either not picked up or dropped off within the appropriate amount of time. It does not matter if those containers are empty or full, nor does it matter if the containers are being stored in a port, outside of a port, terminal, or depot. 

For imports and exports alike there are time frames associated with containers. Regardless of the method used or the location where the container ends up, there is a length of time allotted for pickup and removal of the containers from the given locations. Free time is a given amount of time allotted for such pick up. If containers imported or exported are not properly picked up and removed from a port, a terminal, or anywhere else, they start to accumulate charges much like a car parked in a public location accumulating hourly charges.

Example of Container Demurrage 

A container is discharged off a ship on the 1st of June and the consignee only approaches to retrieve the container for delivery on the 11th of June. Assuming we consider the standard free days offered by the shipping line (different from port free days) is 7 days from the date of discharge, the free days should expire on the 7th of June. Therefore, the box would have been stored in the port/terminal for a total of 11 days when you collect it on the 11th of June.

 11 days – 7 days = 4 days of overstaying

 So, the shipping line will charge the consignee demurrage for 4 days (7th to 11th June) at a pre-fixed rate. 

Example of Container Detention 

Referring to the above example, the customer took the container out of the port/terminal on the 6th of June which is within the free period, but the empty container is only being returned to the nominated depot on the 18th of June. 

So, the shipping line can charge the consignee detention for 11 days from 7th (expiry is 8th of June) to the 18th of June at a pre-fixed rate.

Its Effect on Exports

These effects on exports can be rampant. Not only can It add to the cost for shippers trying to export goods but it can cause scheduling delays. If it happens regularly this can add up in terms of time wasted, delays, business lost, and fees accrued. It can also cause other delays when there is insufficient space available for incoming containers or outgoing containers because of things that are currently in storage or delays because additional containers have to be moved onto vessels for which they were not originally scheduled.

Let’s assume that one company is trying to export 5 containers at once all five of which contain items that have to reach their next port by the end of the month. With a single issue affecting one of those containers, that container might be charged with a detention fee because it wasn’t returned on time with the necessary goods for its shipment. Not only does the company face charges but that single container will not make the deadline now because it has to be rolled over onto the next available vessel which doesn’t leave for three days. Three days beyond the allotted time a cruise 3 days worth of detention charges. Subsequently, business is lost because the people relying upon that shipment arriving on time were let down by their company.

What are the differences between bills of lading vs. non-negotiable bills of lading?

What are the differences between the bills of lading vs. non-negotiable bills of lading?

Bill of lading is a transport document that is used in international port to port sea shipments. 

This transport document has a long history as it can be accepted as a first transport document used in international shipments.

The traditional bill of lading was developed before the industrial revolution had been taken place. 

At those times vessels were slow and information options were very limited comparing our current technology. 

Bill of lading has been evolved over the years in order to respond to the changing business environment. Non-negotiable bill of lading is one of the end results of this evolution.

The traditional bill of lading is a document of the title so you can transfer the ownership of the goods to another party by means of endorsement or delivery. 

For this reason, buyers have to present at least one original bill of lading to the carrier at the port of discharge. Non-negotiable bill of lading is not a document of title. 

As result buyers do not have to present at least one original bill of lading to the carriers at the port of discharge. 

Also, you cannot transfer the ownership of the goods to another party by means of endorsement or delivery under a non-negotiable bill of lading. 

That is why the non-negotiable bill of lading is called non-negotiable sea waybill. It is not a bill of lading in a traditional sense.

Main Differences :

·   Consignee: Bill of lading can be issued in a negotiable form. Non-negotiable sea waybill cannot be issued in a negotiable form. You should indicate your buyer's name on the non-negotiable sea waybill. 

·   Endorsement: The only bill of lading can be endorsed. Non-negotiable sea waybill cannot be endorsed. 

·   Delivery of Goods: Under the traditional bill of lading, buyers have to present at least one original B/L to the carrier’s agent at the port of discharge. Otherwise, they cannot get the goods unless a letter of indemnity is issued. Under non-negotiable sea waybill, buyers can claim the goods by confirming their identity.

Are there any differences between express bills of lading vs. non-negotiable sea waybills?

Are there any differences between express bills of lading vs. non-negotiable sea waybills?

We can see that international logistics sector is no shy assigning new names to the transport documents. 

ICC which is the short form of International Chamber of Commerce have noticed this reality and add phrases to its rules books such as UCP 600, ISBP in an effect that the name of the transport document is not a point of consideration. 

Actually both non negotiable bill of lading and express bill of lading have the same transport document. They are not document of title so you cannot transfer the ownership of the goods to another party by means of endorsement or delivery. 

Buyer at the port of discharge can get the goods without surrendering at least one original bill of lading by simply proving its identity.

May be the only difference would be between express bill of lading vs. non-negotiable bill of lading is that in express bill of lading case forwarder’s do not issue full set of bill of lading. 

They may be issue one non-negotiable form in a soft copy and send it to both the shipper and their agent at the port of discharge via e-mail. 

Of course, I am not talking about the electronic bill of lading. They would be subject to another article.

Letter of Indemnity (LOI)

Letter of Indemnity (LOI)

A document that serves to protect the carrier/owner financially against possible repercussions  in connection with the release of goods without presentation of an original bill of lading. A letter of indemnity is used in cases in which the goods arrive at the port of destination before the original bill of lading. The issuance of the letter of indemnity allows the purchaser to take immediate delivery of the goods, thus saving himself time, additional demurrage, storage expenses, insurance costs, etc.

Letters of Indemnity for Telex Release of goods

If a negotiable bill of lading has been issed in an international trade transaction, then importers have to present to the carrier’s agents at the port of discharge one original copy of bill of lading in order to receive the goods.

If buyers could not present this original bill of lading than the shipper may have to fill a document called letter of indemnity to have the goods released without surrender of the original bill of lading. 

This article explains the issuance process of letter of indemnity and telex release of goods.

Bill of lading is a transport document which is used only port-to-port sea shipments. 

In a traditional way bills of lading are document of title which means that with the help of an original bill of lading you can legally transfer ownership of the goods by delivering or endorsing it over to another party.

Traditional bills of lading should be issued in a negotiable form allowing the delivery or endorsement title of goods to another person. 

Negotiable form bills of lading can be issued as bellows:

·                     consignee : to the order of “XYZ Bank” 

·                     consignee : to the order of “the shipper” 

·                     consignee : to the order

Once the bills of lading are issued in a negotiable form as shown above, they can be endorsed to a third party. The receiver of the goods, which is known as consignee, can be changed to a new person or company by endorsement. 

As a result the carrier’s agent at the port of discharge cannot determine without the presentation of original bill of lading by himself who the actual receiver would be in a situation where a traditional bill of lading used as a transport document.

In order to prevent any mistake, shipping sector created regulations for delivery of goods at the port of discharge for shipments made under traditional bill of lading. 

According to these rules at least one original bill of lading must be surrendered to the shipping line’s agent at the port of discharge for delivery of the goods. 

The carrier have to release the goods to the original bill of lading holder at the port of discharge.

In some occasions buyers at the port of discharge could not present at least one original bill of lading to the carrier’s agent. 

Bellow you can find some possible reasons why buyers at the port of discharge could not present at least one original bill of lading:

·        Buyers may have lost the original bill of lading 

·        Bills of lading may have been lost during the courier service 

·        Vessel may have been arrived to the port of discharge before exporter could   dispatch the shipment documents to the importer. 

·        Goods may have been sold couple of times during the transportation between port of shipment to port of discharge. As a result documents may not be ready when the vessel arrived to port of discharge.

If the buyer could not provide the original bill of lading to the carrier at the port of discharge, than the shipper should fill a letter of indemnity to be given in return for delivering cargo without surrendering of the original bill of lading.

What is the required information should be included in a letter of indemnity

There is no formal sample format exist for a letter of indemnity. As a result each shipping line produces its own format. But we can summarize the main parts that need to be included in a letter of indemnity as bellows:

·                     Vessel Name / Voyage Number 

·                     Port of Loading 

·                     Port of Discharge 

·                     Bill of Lading Number 

·                     Number of Packages 

·                     Goods Description 

·                     Indemnify the carrier and their agents and hold all of them harmless in respect of any liability, loss, damage or expense of whatsoever nature which they may sustain by reason of delivering the cargo in accordance with the request to do so provide sufficient funds to defend any claim brought in connection with the delivery of cargo without bills of lading.

Samples:

As I have explained above there is no standard format letter of indemnity exist but ı can give couple of samples to provide general information as bellows:

To : Golden Fortune Shipping Co., Ltd. Hong Kong

(Agents for Shanghai Hai Hua Shipping Co., Ltd.) if appropriate

Dear Sir/Madam,

Vessel/Voy : ___________________________________

Port of Loading :____________________________________

Port of Discharge : ___________________________________

B/L No. : ___________________________________

No. of Packages : ___________________________________

Goods Description : ___________________________________

The above goods were shipped on the above vessel by us and we hereby request you to deliver such goods at the above port of discharge to _____________________________ without production of the bills of lading.

In consideration of your complying with our above request, we hereby agree as follows:

1. The full set of original bills of lading properly endorsed is surrendered at the above port of loading.

2. To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability loss expenses or damage of whatsoever nature which you may sustain by reason of delivering the goods  to_______________________________________ in accordance with our request.

3. In the event of any proceedings being commenced against you or any of your servants or agents inconnection with the delivery of the goods as aforesaid to provide you or them from time to time on demandwith sufficient funds to defend the same.

4. If the vessel or any other vessel or property belonging to you should be arrested or detained or if the arrest or detention thereof should be threatened, to provide such bail or other security as may be required toprevent such arrest or detention or to secure the release of such vessel or property and to indemnify you inrespect of any loss, damage, liability or expenses caused by such arrest or detention or threatened arrest ordetention whether or not such arrest or detention or threatened arrest or detention may be justified.

5. The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.

6. This indemnity shall be governed by and construed in accordance with Hong Kong law and every person liable under this indemnity shall at your request submit to the jurisdiction of the Hong Kong court.

Yours faithfully,

____________________________________

(Cargo Owner/For and on behalf of Shipper)

(Place and date)

Costing for Export

There are many costs incurred in an export transaction, which are not applicable to domestic sales. 

It is recommended that a costing sheet is prepared to ensure that all cost items relevant to the export transaction are itemized and included. This will ensure that a correct quotation can be prepared accurately and quickly.

Generally, export costing should include the manufacturing cost and any additions or modifications to products, special packaging, ingredients, formula or specification modification, quality control, export administration, freight, distribution and marketing.

Also there are special costs applicable to particular industries, which should not be overlooked. In addition, costs of premiums for credit risk insurance, foreign exchange risk, loss of interest when providing credit terms, bank charges, agents commissions, training customers’ or agents’ personnel, bid and performance bonds and other bank guarantees may have to be taken into consideration when preparing a quotation.

Export costing should not be confused with pricing. The following definitions indicate the differences:

• Costs: are the total of all expenses associated with producing and selling a product overseas.

• Price: is the amount for which the exporter sells the product and is determined by the exporter’s marketing strategy.

• Margin: is the difference between the total cost per unit and the export selling price; and is determined by the exporter’s corporate objectives.

COSTS ASSOCIATED SPECIFICALLY WITH EXPORT DOCUMENTATION, TRANSPORT AND INSURANCE INCLUDES THE FOLLOWING:

• Customs clearance (EDN): obtaining the Export Declaration Number issued by the Australian Customs Service and any other export permit or license from regulatory authorities.

• Certification/ Legalization: certification/legalization of documents and preparation costs (eg.State Chamber of Commerce, embassies, company staff costs; courier satchels, etc.)

• Inspection costs: of arranging and supervising inspection of goods if required. Note: Whether the exporter or importer is responsible for the payment of inspection fees should be established when preparing the quote.

 • Cartage: to wharf or airport—delivery by road to the container depot or airport, eg. cost of road haulage by a contractor or cost of exporter’s own transport.

• Packing/labor costs: it is the exporter’s responsibility to include export packaging as part of the export price. However, on some occasions special packing requirements are prescribed by the importer. In this case, the additional costs incurred may be added to the pricing structure.

• THC (Terminal Handling Charge) / Port Service Charge (PSC): these charges are made by port authorities for use of their facilities. They are normally included in the freight rate charged by the shipping company and paid on the shippers’ behalf to the port authorities. Occasionally, for charter vessels, etc. the charges will have to be paid direct to the port authority by the shipper.

• Sea or air freight: cost obtained from shipping company, airline or consolidator. Also an allowance for contingencies is recommended. This is to allow for possible rate increases, adjustments to the Bunker Adjustment Factor (BAF)/Currency Adjustment Factor (CAF) percentages or other unforeseen circumstances.

• Marine insurance premium: cost obtained from insurance company or broker.

• Credit risk insurance premium. 

What You Should Know When Requesting an Ocean Freight Quote

What You Should Know When Requesting an Ocean Freight Quote

Ocean freight is one of the biggest costs for importers today, and it’s not exactly getting any cheaper. Ocean freight cost has been and is steadily increasing, which makes it hold a bigger and bigger piece of importers’ overall expenses. For this reason, it is critical to know how to calculate the shipping cost. It is so important to provide the most complete information to your transportation partner when requesting a quote, in order to get the most accurate ocean freight cost.

Origin/Destination:

The most basic required information is to know where the cargo needs to be picked up and where it needs to be delivered. Pay attention to your agreement with your supplier, and find out what exactly your supplier is responsible for. Are they only loading the container, and it needs to be picked up from the factory/warehouse or are they delivering the container to the closest port?

Equipment/Container Size:

The most commonly used containers are 20 ft, 40 ft and 40 ft high cube. Your supplier can provide this information according to the amount of goods you have ordered,or you can check with your forwarder.

Transit Time:

Inform your forwarder if you need a fast service or not. Some carriers have longer transit time with better rates, and significant cost savings can be made if your shipment is not time sensitive.

Merchandise Ready Date:

This is also very important information to have. Ocean freight rates are seasonal and change frequently. Even if you don’t have an exact date, provide an estimate.

Customs Clearance:

Customs clearance needs to be done at the destination country according to country regulations. Ask your forwarder if they provide that service. If not, find a broker and request a separate rate from them.

Charges at Destination:

As each country has their own regulations, just as each port has different charges. Find out if there are any additional charges at the port of destination.

Door Delivery:

If you need to deliver the container to a specific address, provide the full address to your forwarder to get an exact door delivery rate. Try to determine how long it would take to unload the container at final destination. This could prove to be an extra cost, as most truckers give 2 hours free time then charge by the hour after that.

Commodity:

Always inform your forwarder about the product that you are shipping. If it’s a hazardous shipment, it requires special permits to carry the cargo.

In order to know the market, you have to do your research. Contact several freight forwarders for rates, to get a good idea of the current rate level and whether or not your current transportation partner is providing you with competitive rates. This doesn’t mean that you base your decision on who provides the lowest rates, many other factors are important when choosing service providers. 

Types of Letters of Credit

Types of Letters of Credit

There are various types of letters of credit used in the trade transactions. Some of the letter of credit may be defined by their purpose. The following are the different types of letters of credit:

·  Commercial LC: A standard LC, also called as documentary credit.

· Export/Import LC: The same letter of credit can be called export or import depending on who uses it. The exporter will term it as an exporter letter of credit, whereas an importer will term it as an importer letter of credit.

· Transferable LC: A letter of credit that allows a beneficiary to further transfer all or a part of the payment to another supplier in the chain. This generally happens when the beneficiary is just an intermediary for the actual supplier. Such letter of credit allows the beneficiary to provide its own documents but transfer the money further.

  

· Un-transferable LC: A letter of credit that doesn’t allow transfer of money to any third parties. The beneficiary is the only recipient of the money and cannot further use the letter of credit to pay anyone.

· Revocable LC: A letter of credit that can be altered any time by the issuing bank or the buyer without any notification to the seller/ beneficiary. Such types of letters are not used frequently as the beneficiary is not provided any protection.

  

· Irrevocable LC: A letter of credit that does not allow the issuing bank to make any changes without the approval of the beneficiary.

· Standby LC: A letter of credit that is designed to assure the payment if something wrong happens. If the beneficiary proves that the promised payment was not made, a standby LC becomes payable. It does not facilitate a transaction but ensures the payment.

·  Confirmed LC: A letter of credit where an advising bank also guarantees the payment to the beneficiary. Only the irrevocable letters of credit are confirmed by the advising bank. The beneficiary has two promises to pay – one from the issuing bank and the other from the advising bank.

· Unconfirmed LC: A letter of credit that is assured only by the issuing bank and does not need a guarantee by the second bank. Mostly the letters of credit are unconfirmed letter of credit.

·  Revolving LC: A letter of credit used for several payments instead of issuing letters for each leg of the transaction.

·  Back to Back LC: A letter of credit which is commonly used in a transaction including an intermediary. There are two letters of credit, the first issued by the bank of the buyer to the intermediary and the second issued by the bank of intermediary to the seller.

· Red Clause LC: A letter of credit that partially pays the beneficiary before the goods are shipped or the services are performed. The advance is paid against the written confirmation from the seller and the receipt.

· Green Clause LC: A letter of credit that pays advance to the seller just not against the written undertaking and a receipt, but also a proof of warehousing the goods.

· Sight LC: A letter of credit that demands payment on the submission of the required documents. The bank reviews the documents and pays the beneficiary if the documents meet the conditions of the letter.

·  Deferred Payment LC: A letter of credit that ensures payment after a certain period of time. The bank may review the documents early but the payment to the beneficiary is made after the agreed-to time passes. It is also known as usance LC.

· Direct Pay LC: A letter of credit where the issuing bank directly pays the beneficiary and then asks the buyer to repay the amount. The beneficiary may not interact with the buyer.

Conclusion

As mentioned above, a letter of credit can be of various types depending on its purpose. It is in the interest of both the buyer and the seller, to understand all the different types thoroughly and then pick one which serves the purpose completely.