Ocean Freight
 
Ocean freight is classified by how it is tendered to a carrier, either full container load (FCL), or less than container load (LCL).

FCL shipments are tendered to the ocean carrier as a full 20 foot or 40 foot load. The container moves intact from origin to destination point. Since the entire container is handled as a single unit from origin to destination, there is less chance for loss or damage to the freight. Highway and steamship safety regulations impose maximum weight that can be loaded into containers.


LCL shipments are tendered by shippers who don't have enough freight to fill a full container load. Carriers consolidate multiple shipments in the 20 or 40 foot containers at their container freight stations (CFS).

Containers
Ocean freight is usually shipped in containers, containerization makes handling more efficient and reduces damage. The ocean container is reusable, weather tight and are designed for intermodal travel, they can be hauled by trucks or trains, as well as by ships.

The two most common container lengths used in ocean freight are 20-foot and 40 foot, the width of most ocean containers is 8 foot. The most common container type is the dry cargo container, this is a weather tight metal box. There are also refrigerated, also called reefer, open top and flat bed type containers.

Container Type Max Weight Max Capacity Standard Loadability
  (kilos/pounds)   @ 85%
       
20 foot dry cube 15,880 kgs/35,000 lbs 32 cubic meters 28 cubic meters
40 foot dry cube      
(7'6" high) 20,871 kgs/46,000 lbs 67 cubic meters 57 cubic meters
40 foot dry cube      
(9'6") 20,871 kgs/46,000 lbs 76 cubic meters 64 cubic meters
45 foot dry cube 20,871 kgs/46,000 lbs 85 cubic meters 73 cubic meters
40 foot reefer 19,056 kgs/42,000 lbs 66 cubic meters 56 cubic meters


The maximum capacity assumes that all space is used, the standard load ability is closer to the actual capacity given the unused space between pieces of freight.

Non-Containerized Freight
Sometimes it is not possible to load freight into a container. There are two basic types of non-containerized ocean freight:

Break bulk
This is used for oversized, bulky freight in very high quantities or high volume. This freight will travel loose in areas of a steamship designed to accommodate it. Common break bulk freight includes oil, wheat, sugar, meat products, livestock, plywood, and steel.

Roll on/Roll off (RO/RO)
This freight includes anything on wheels such as automobiles, trucks, boats, farm machinery, etc. The vehicles are driven onto the ship, a RO/RO ship looks like a floating, multi-level parking garage. The loading doors can be as high as 20 feet, and as wide as 40 feet.

The ocean shipping industry is populated by steamship lines, NVOCC's, ocean forwarders, customs brokers, and other specialized companies and professionals.

Steamship Lines
Steamship lines own and operate cargo ships. Steamship lines sail regular routes on regular schedules. Shippers, forwarders, and NVOCC's must accomadate their schedules to steamship schedules.

NVOCC's
Non Vessel Operating Common Carrier, also known as NVO's. NVOCC's are "steamship lines without steamships," the act as a carrier and provider of ocean freight services. An NVOCC issues its own through bills of lading, makes agreements with one or more steamship lines that it will ship a certain number of containers with the line within an agreed amount of time. NVOCC's can carry FCL or LCL shipments, their strength is in the LCL as they can obtain rates that an LCL customer could never obtain direct from a steamship line. The NVOCC operate container freight stations (CFS) for consolidating freight, can also advance charges such as inland freight, cartage and forwarding fees, this enables the NVOCC to accept responsibility for shipments going from an inland origin to an inland destination. They offer flexibility that steamship companies cannot offer. NVOCC's can send freight with many lines, often finding more direct routes and better prices than a single steamship line can offer.

Ocean Forwarders
The ocean forwarder can quote ocean, truck, rail and other freight rates for shipments moving to a port, arrange truck, rail and ocean shipping, prepare documents for export, but cannot issue a bill of lading. An NVOCC or steamship line can only prepare documents for destination to which they ship.

Customs Brokers
Customs brokers are licensed by the government of the countries in which they operate. The customs broker's role for ocean shipping is to complete import paperwork on behalf of importers, and assist the importer in clearing the shipment through customs. Customs brokers are not involved in export shipments. The broker can act as a consultant to the consignee advising as to how to declare goods to minimize duties..

Conference and Non-conference Steamship Lines
A conference is two or more steamship companies that agree on pricing and schedules between specific geographic regions of the world. Conferences are a bit like monopolies, but they are allowed by international law. Conferences can set prices as a group without being subject to anti-trust laws. Conferences file joint tariffs for specific lanes and for a specific commodities within those lanes. A conference legally controls much of the freight on particular lanes. Conferences provide customers, NVOCC's, and forwarders with advantages such as:
More available space
The capacity of the member lines is combined so the conference can offer greater tonnage in the lanes it serves.
Better equipment availability
Joining forces allows conference lines to pool containers and other equipment.

Non-Conference
Non-conference, or independent, steamship lines cannot provide the schedules that conference members can. Since non-conference lines usually stop at many more ports than conference lines, customers receive less direct and slower service to most ports served. The non-conference lines offer rate and pricing advantages over conferences. Independents often have better prices than conferences, but more importantly, they have more flexibility to set rates than conference lines do. Independents do not have to have their rates reviewed and approved by other lines.

Rates
Ocean rates are applied to individual shipments based on either the weight or volume measurements of the freight. Ocean shipments are always calculated using the metric system, the rates are commodity-specific as well as lane-specific, ocean prices are most often determined using the volume of the freight. It is essential to know both the weight and the number of cubic meters for a shipment to determine whether with or volume will be used.

Metric Conversion
"1000 kilos or 1 cubic meter, whichever produces the greater revenue".

Document Description Required For:
Commercial Invoice Provided by the exporter. Used to Determine duty And tax payable in destination country. Shows priceThe importer must pay for the goods being shipped.Must show terms of sales, and be issued in accordance with the letter of credit. Must be on company letter head.
ALL shipments
Packing List Must show: description, quantity, weight, and volume of The goods being shipped. ALL shipments
Shipper's Letter ofInstructions Must show; description, weight, dimensions of commodity, vessel and date of voyage; exact destination; name and
Telephone number of destination contact; what type of
Service (door-to-door, door-to-port etc.); terms of payment;Value of shipment; export license number.
ALL shipments
Shipper's ExportDeclaration (SED) Required by the U.S. Customs Service to monitor the flow of commodities to other countries. Contains informationSimilar to the commercial invoice. Must include EIN Number and signatures Shipments from the USwith a value of $2500 ormore.
Certificate of Origin Standard form that contains information similar to a billOf lading. When requested by Importer(special Certificates of origin are required for goods shipped To destination countries With special agreementsWith origin countries. (e.g. NAFTA)
Marine Insurance Policy Prepared by the freight forwarder for the exporter(or by the customs broker for the importer). Policies Can cover total or partial loss. They can cover freight
From door-to-door, or on the main vessel only.
When requested by exporter or importer
Letter of Credit L/C A credit line opened by a bank and debited when the Buyer show the carrier-endorsed bill of lading to theBank. When letter of credit is used, the banks take thePlace of the importer and exporter in exchanging Shipment documents and money For international transactions where it is necessary to ensure that both shippers and consignees fulfill their obligations for promptShipment and payment.
Sight Draft Check issued by the importer's bank to the exporter. For international transactions Where some level of rotection
Is needed for the buyer and Shipper, but not as much as in a Letter of credit transaction.
 

Bills of lading

No matter what the mode of transportation is, the bill of lading (B/L) serves as the basic contract between the shipper and the carrier. There can be one or more bills of lading used for a single ocean shipment. An ocean shipment is often passed from a domestic inland carrier to a steamship company, and then to a foreign inland carrier. Each carrier will require a bill of lading. An NVOCC will issue a combined bill of lading to cover the shipment on all parts of its trip. The combined bill of lading eliminated redundant paper. Even if the shipment is only moving port-to-port a combined bill of lading can be used. A freight forwarder does not issue a combined bill of lading. The customer will receive copies of the inland carrier's bill of lading and the ocean carrier's bill of lading.

Bill of lading Type Purpose
   
Inland Bill of Lading, The movement of the LCL ocean shipment from the
Straight bill of lading, truck bill of lading shipper's door to the consolidation center.
Or domestic bill of lading  
   
Ocean or Steamship bill of lading The movement of the shipment by steamship from the origin port to the destination port.

 

"To Order" (negotiable) Bills of Lading
Ocean bills are usually consigned "to order of the shipper" when letters of credit or sight drafts are used. When a bill of lading is consigned in this way it becomes a negotiable bill of lading. A negotiable bill of lading serves as the actual title to the goods, at least as far as the steamship line is concerned. In other words, whoever holds the original copy of the negotiable bill of lading is the owner of the goods. The bill of lading will often be held temporarily by an agent or bank. The shipper will give up his or her right to the bill of lading only after having been paid.

When an ocean shipment is a direct sale (prepaid or collect), the bill of lading is usually consigned to the consignee. The bill of lading for such shipments is non-negotiable and is often referred to as an express bill of lading.

Bills of lading for Letters of Credit
Letters of credit and sight drafts are used in both international air and ocean shipments. But in ocean shipping, special bills of lading are used for letter of credit and sight draft transactions.

Terms of Sale (Incoterms)
When goods are shipped, the seller and buyer of the goods agree on terms of sale. The terms of sale determine which party will be responsible for the goods at each particular stage of transit. While terms of sale are important for the buyer and the seller, they are also important for the carrier.

The four most common incoterms used in ocean freight:
EXW - Ex Works
FOB - Free On Board
CFR - Cost and Freight (also called C&F)
CIF - Cost, Insurance and Freight

Ex Works (EXW)
The term Ex Works refers to the days when places of business were known as "works"- the blacksmith's works, the iron works, the goldsmith's works. When this term of sale is agreed to, it means that the exporter's price for the goods includes making the goods available at the named point (the "works"), ready for shipment. The importer is responsible for getting the goods from the exporter's works to the destination.


Free on Board (FOB)
When FOB is the agreed term of sale, the exporter's price includes the cost of the merchandise and all shipping costs to the named point, including loading on board the carrier and forwarder's fees. The importer is responsible for getting the goods from the origin port.


Cost and Freight (CFR)
The exporter's price includes the cost of the merchandise and all shipping costs to the named point. The exporter is responsible for getting the goods from the exporter's works to the destination port.

Cost, Insurance and Freight (CIF)
The exporter's price includes the cost of the merchandise, all shipping costs to the named point and insurance.

Letter of Credit/Sight Drafts
A letter of credit is a credit line opened by a bank and debited when the buyer shows the carrier-endorsed bill of lading to the bank. Letters of credit are sometimes used in international ocean transactions, and help to ensure that both shippers and consignees fulfill their obligations for prompt shipment and payment.

When a letter of credit is used, the banks take the place of the importer and exporter in exchanging shipment documents and money.

The letter of credit process protects both the buyer and the seller. Once a letter of credit is issued, neither party can pull out of the transaction without the other's agreement. The exporter is confident he will be paid-the money is already set aside before the goods are shipped. The importer is confident that the goods will be shipped, because the exporter cannot get his money until the goods are shipped.

A sight draft is a check issued by the importer's bank to the exporter. A sight draft is also called "cash against documents." When a sight draft is used, it is like a letter of credit transaction, but without the letter of credit itself. There is not the level of protection for the exporter that there is with a letter of credit, but there is some. The exporter does not have to give up his goods if he is not paid.

Levels of Service
Port-to-Port
Port-to-Door
Door-to-Port
Door-to-Door

Included as port-to-port shipments are those shipments that travel from a shipping terminal in one inland city to a shipping terminal in another inland city. A more accurate name for such a service level is point-to-point. These shipments can still travel under an ocean bill of lading.

LCL Freight Flow
The origin inland phase
The ocean phase
The destination phase

Origin Inland Phase

  1. Trucking to the consolidation warehouse
  2. Loading the shipment in containers with other LCL shipments
  3. Moving the LCL container load to the deep water port.
    Ocean Phase
  4. Loading the container on the vessel
  5. Sailing to the destination port
  6. Unloading the container from the vessel
    Destination Inland Phase
  7. Moving the shipment to a bonded deconsolidation warehouse
  8. Deconsolidating containers
  9. Clearing the shipment through Customs
  10. Moving the shipment from the warehouse to destination via truck

Documentation Flow
In ocean shipping, documents move separately from the freight itself. The original bill of lading as well as the shipping instructions, commercial invoice, and other required export documents are flown, or sent electronically, to the destination. Getting the documents to the destination will ahead of the freight allows the consignee's customs broker to begin the process of clearing the freight through Customs.

Customs Clearance
The consignee's customs broker handles most of the documents related to the international shipment. Before an international shipment can be released and delivered, the customs broker must:

  • Prepare the inland transit document which allow freight to be moved from the port before clearing customs
  • Contact the inland carrier
  • Obtain all customs and freight releases
  • Forward original copies of ocean bill of lading and delivery orders to authorize pickup of freight at the port
  • Deliver freight to consignee