New to exporting? Don’t go it alone when it comes to freight, get all the good advice you can find so you might avoid the expensive horror stories that still plague the unwary and unprepared. Joe Parkes talks to experts about the state of freight, and how you can protect your cargo.
There’s an SME-led export boom going on, and our small to medium exporters are beating a path to the doors of shipping and airfreight services to move their cargo offshore. There’s a lot to learn, including a language of freight jargon, and you need to find the right help to avoid serious and expensive disasters.
New Australian Bureau of Statistics figures show that the number of Australian SMEs involved in export jumped two-thirds in the past decade to 42,000. Those same SMEs are also discovering that the heavy demand for space on container ships and in aircraft heading overseas is involving them in an adventure all of its own.
The Federal Bureau of Transport and Regional Economics predicts that in four years Australia’s containerised exports will have grown at such a pace there will be about 3.8 million of them passing through our sometimes groaning ports systems—89.9 percent through Australia’s five main city ports.
The Australian Shipowners Association says it is seriously concerned that this massive demand is turning into a nightmare. Governments are ignoring the problem of inadequate domestic transport infrastructure, it claims, while the shipping industry has been left with the responsibility of funding the country’s ports infrastructure.
What’s an Aussie exporter, especially a smaller company, to do?
Llew Russell, CEO of Shipping Australia, whose member shipping lines carry approximately 80 percent of Australia’s container trade, recommends that exporters get all the export advice and assistance they can lay their hands on. "Use a logistics firm or a freightforwarder or go directly to the shipping companies," he counsels. "Shippers can advise you on issues such as documentation and packaging—vital because items must be packed securely. But exporters have an obligation themselves to accurately estimate total shipment weights and give careful attention to their dealings with Customs and quarantine, here and abroad.
"Exporters don’t always appreciate the importance of taking out insurance on their shipments. Your best plan is to prepare a good checklist, covering all the important issues, when you are booking your shipment. SME exporters especially should get all the shipping and security charges in a written quote so they don’t end up trying to cope with an unpleasant surprise. And don’t forget to check out overseas port charges and taxes, like Value Added Taxes, which can vary quite a bit between countries."
Russell adds that another benefit with written quotes is allowing exporters to compare costs between service providers.
Brian Lovell, CEO of the Australian Federation of International Forwarders, is equally emphatic about the need for exporters to cover themselves with cargo or marine insurance. They should also ensure that their freightforwarder has liability insurance. "If the forwarder accidentally sends a shipment to Port Chalmers in Scotland instead of Port Chalmers in New Zealand—and does not have liability insurance—the loss can be carried by the exporter. So always ask if he is insured for liability."
Lovell believes one of the most important strings to an exporter’s bow is his ability to understand the vagaries of the market he is dealing with. "Speculative exporting is not so common these days, but if a product you are sending overseas ends up in a glutted market, for example, the exporter could find his products dumped in a foreign port with the costs of the freight still needing to be paid," he explains. "It can become extremely expensive, and, yes, it still occasionally happens."
Russell says shipping lines will generally not release original Bills of Lading for the containers involved until freight has been paid. Expert service providers like banks, which often know importers in other countries, can explain these and other risks to exporters, and they have a wealth of information that new exporters can tap into.
He urges exporters to adopt a golden rule of giving themselves plenty of planning time before shipping goods out. "The United States, for example, requires shipping lines to provide details of shipments to authorities 24 hours before they load a container because of security measures in force there," he says. "They demand the best possible description of the cargo and can issue a ‘do not load’ notice if they are not satisfied about the product description."
Lovell says this is also the case in Canada, India, and parts of Europe, and may soon extend to other countries. Australia itself is looking at requirements for pre-arrival information. "It is no longer a case of simply closing off a container a few days before it is loaded and waiting for it to arrive at the other end."
Lovell says a handy rule is to ensure all paperwork is done about 96 hours before loading. This is where the expertise of a freightforwarder or a Customs broker becomes invaluable to exporters. "I wouldn’t recommend anyone trying to do it all themselves unless they are highly skilled in these processes," he adds. "It is very difficult for individual exporters to keep up with the demands of documentation because they are constantly changing."
Exports Permits & Perishables
According to Russell, if you’re exporting foodstuffs you will need an AQIS permit and a Customs authority to send them offshore. Food quality containers must be absolutely clean and the goods will usually require a permit from AQIS as well as having to meet regulations demanded by overseas authorities.
David Bendall, chairman of the Freight Commission of the International Chamber of Commerce (ICC), says if you’re looking to send non-perishable goods by air, your criterion for choice should be the best price available. The most important issue for regularly airfreighting perishable goods is ensuring that the goods are carried on direct flights between ports.
Russell adds that dealing with an airport is very different from operating through a seaport. "Internationally, there’s a lot more control imposed on airfreight," he says. "Seafreight controls are a lot looser with every shipping company using its own regulations as well as the legal controls enforced by each country."
Bendall believes an exporter’s best friends are his freightforwarder, bank, and Australia’s sea and airfreight councils. "It is imperative with perishables, particularly, to go through a reputable freightforwarder who has the clout to deal effectively with the airlines," he says.
What about the horror stories of perishables being dumped to make way for fare-paying passengers on aircraft? "If your goods have been dumped on an airport tarmac there are two things to do immediately. First, contact the authorities, and ensure your goods are moved into storage ASAP," he suggests. "Speed is of the essence. Worry about the costs later."
Neil Murphy, general manager of the South Australia Freight Council, says a survey of South-east Asian food-handling practices by the Australian Logistics Assured program (ALA) had found serious deficiencies in freight-handling practices.
ALA, which covers all members of the export cold chain, found many examples of spoilage, such as in the Philippines where up to half of shipments can be spoiled in transit. But Murphy points out that even in Australia as much as one quarter of domestic shipments can be lost through poor handling procedures.
Bendall says exporters take enormous risks with perishables because even when sending freight to reputable importing countries the infrastructure on the ground is likely to let you down.
"There’s not a lot you can do except ask Australia’s various sea and air councils to help. You can
also remonstrate with your freightforwarder—but that’s about it."
That’s it? Not quite. Murphy says documenting breaks in the cold chain has led to a process aimed at ensuring similar breakdowns don’t happen again. "It’s a long, slow process but South Australian companies are now signing on to participate in the process, which will monitor everything from abalone shipments to Hong Kong to meat pie freight to Singapore. Victoria is also looking at the program but has not been so fast on the uptake.
"When the initial survey has been done we will put it to an independent review and after it is signed off we will continue to monitor shipments for independent analysis of the cold chain process."
A new version of the Uniform Customs and Practices Code (UCP600) will be released on July 1, 2007. The ICC will run a series of seminars in Sydney and Melbourne on the implications of the changes for exporters, forwarders, and carriers.
Learning the Lingo
What’s your record like on complying with ‘Drop Dead Dates’? How about ‘Vendor Management’? They’re just two of the industry slang terms used by exporters and buyers to communicate within the often complex systems of global freight delivery.
The ‘real’ language of export freight is contained in a series of ‘Incoterms’—internationally accepted commercial expressions that define the roles of sellers and buyers in arranging transport, identifying who is responsible for what, and clarifying who is responsible for merchandise when it moves from one party to another.
The International Chamber of Commerce (ICC) introduced Incoterms—short for International Commercial Terms—in 1936. The latest edition of Incoterms came into force on January 1, 2000. They are designed to make international trade easier and help traders understand each another. They are protected by ICC copyright.
The Australian Institute of Export’s export education specialist, Dianne Tipping, says there are 13 very important Incoterms that define who is responsible for what in any export deal. "Two sections of Incoterms terms—for sea and multi-modal freight—contain four groups of terms," she says. "Two of them deal with deliveries within the exporting country and two are devoted to delivery to points overseas. They spell out what a trade deal means."
Incoterms determine responsibilities between buyers and sellers on documentation requirements (who is responsible for certain documentation requirements), when the insurance risk transfers between seller and buyer, and who pays the costs to a particular named point as part of the contract terms.
"There is an Incoterm for every step in the export process, and if there is a dispute it is arbitrated by means of the Incoterm used. Details are available on the ICC website," Tipping says.
Current Incoterms for freight systems are:
EXW (Ex Works)
FCA (Free Carrier)
FAS (Free Alongside Ship)
FoB (Free on Board)
CFR (Cost and Freight)
CIF (Cost, Insurance and Freight)
CPT (Carriage Paid To)
CIP (Carriage and Insurance Paid)
DAF (Delivered at Frontier)
DES (Delivered ex-Ship)
DEQ (Delivered ex-Quay)
DDU (Delivered Duty Unpaid)
DDP (Delivered Duty Paid)
Export slang is another thing altogether, says Peter Melville, logistics manager in Australia for the Maersk shipping line. "A ‘Drop Dead Date’—also known as a Minus 7—is that all-important date on which exporters must book their container shipments to ensure the booking is secured onboard a ship seven days before departure," he explains.
"There are also ‘Vendor Management’ issues covering documentation for Customs and AQIS such as excise invoices, Bills of Lading, and fumigation certificates. Smaller exporters may find the complexity of the system is best dealt with by a Customs broker or freightforwarder."
