Ch2. International Trade English — Shipping, Marine Insurance & Customs

Ocean Transport: The Bill of Lading

The Bill of Lading (B/L) is the most important document in sea freight — it serves three functions simultaneously.

Three functions of a B/L:
① Receipt:              evidence that the carrier received the goods in stated condition
② Contract of carriage: evidence of the transport contract terms
③ Document of title:    the holder has the right to claim the goods at destination

B/L Types

Shipped (On Board) B/L:
  → Issued after goods are physically loaded on the vessel
  → Required by most Letters of Credit

Received for Shipment B/L:
  → Issued when goods are received by the carrier (before loading)
  → Usually unacceptable under L/C unless "On Board" notation is added

Clean B/L:
  → Carrier notes no visible damage or shortage
  → Required by banks for L/C payment

Claused (Dirty / Foul) B/L:
  → Carrier has noted defects or discrepancies in the goods or packaging
  → Banks will typically refuse payment under an L/C

B/L Transferability

Straight (Non-negotiable) B/L:
  → Consigned to a specific named party; cannot be transferred

Order B/L:
  → "To Order of [party]" — transferable by endorsement
  → Most common in international trade

Bearer B/L:
  → Whoever holds the document can claim the goods
  → Rarely used due to security risk

Key Fields on a B/L

Shipper:               exporter (seller)
Consignee:             importer (buyer), or "To Order"
Notify Party:          party to be informed of arrival (often buyer or forwarder)
Port of Loading / Port of Discharge
Vessel Name / Voyage Number
Description of Goods, Quantity, and Weight / Measurement
Freight:               Prepaid (paid by shipper) or Collect (paid by consignee)

Air Transport: Air Waybill

Air Waybill (AWB):
→ Receipt for goods and evidence of the air transport contract
→ NON-negotiable (unlike an ocean B/L — not a document of title)
→ Consignee can collect goods with just their ID (AWB not required for delivery)

MAWB (Master Air Waybill): issued by the airline
HAWB (House Air Waybill): issued by a freight forwarder

Container Shipping and Freight Charges

Standard container sizes:
  TEU: 20-foot equivalent unit (20′ container)
  FEU: 40-foot equivalent unit (40′ container)

Cargo loading:
  FCL (Full Container Load): one shipper fills an entire container
  LCL (Less than Container Load): cargo from multiple shippers consolidated
    → routed through a Container Freight Station (CFS)

Ocean freight surcharges:
  BAF (Bunker Adjustment Factor):    fuel cost surcharge
  CAF (Currency Adjustment Factor):  currency fluctuation surcharge
  PSS (Peak Season Surcharge):       high-season premium
  THC (Terminal Handling Charge):    port terminal fee

Freight calculation basis:
  W/M (Weight or Measurement):
    → whichever produces the higher freight (weight in metric tons vs. cubic metres)
    → 1 CBM is typically treated as equivalent to 1,000 kg

Multimodal Transport

Multimodal transport:
→ Two or more modes of transport (sea + road, sea + air) under a single contract
→ Document: Multimodal B/L or FBL (FIATA Multimodal Bill of Lading)
→ Operator: MTO (Multimodal Transport Operator) — single point of liability

Benefits:
→ One contract, one document, one invoice
→ End-to-end responsibility
→ Often cheaper and more efficient than separate contracts

Marine Cargo Insurance

Why marine insurance?
→ Ocean voyages expose cargo to: storms, fire, sinking, stranding, theft, piracy
→ Without insurance, any loss during transit falls entirely on the cargo owner

Institute Cargo Clauses (ICC)

The standard conditions issued by the Institute of London Underwriters, used worldwide.

ICC (A) — All Risks (broadest coverage):
→ Covers ALL risks of physical loss or damage unless explicitly excluded
→ Exclusions: inherent vice, delay, war (unless War Clause added), strikes
→ Most commonly required under CIF contracts

ICC (B) — Named Perils:
→ Covers specific listed perils: earthquake, flooding, washing overboard,
   entry of sea/lake/river water, total loss of package during loading/unloading
→ Does NOT cover theft (unless added)

ICC (C) — Major Perils Only:
→ Covers: fire, explosion, vessel stranding/grounding/sinking/capsizing,
   collision, emergency discharge at port of distress
→ Narrow coverage; rarely used in modern trade

Insurance Amount and Premium

Standard insured value (CISG/trade practice):
  CIF invoice value × 110%  (10% markup covers expected profit)

Premium:
  Rate × Insured value
  Rate depends on: cargo type, route, vessel, packing, coverage level

Important: under CIF Incoterms, the SELLER buys insurance but the
           BUYER bears the risk → buyer should verify coverage is adequate

Export and Import Customs Clearance

Export clearance (seller's obligation for most terms):
→ Submit export declaration to customs authority
→ Provide: commercial invoice, packing list, B/L (or air waybill), C/O
→ Receive customs clearance / export permit
→ Customs may inspect cargo (random or risk-based)

Import clearance (buyer's obligation for most terms):
→ File import declaration
→ Pay import duties, VAT, and any applicable tariffs
→ Provide: commercial invoice, packing list, B/L, C/O (for tariff preferences)
→ Receive customs release order → collect cargo from port

Certificate of Origin (C/O)

Purpose:
→ Proves where goods were manufactured
→ Required for preferential tariff rates under FTAs

Types:
→ Non-preferential C/O: general proof of origin (Chambers of Commerce)
→ Preferential C/O: entitles goods to reduced / zero tariffs under an FTA
   Examples: Form A (GSP), EUR.1, ASEAN Form D

FTA origin rules:
→ Wholly obtained (WO): 100% produced in one country
→ Substantial transformation: minimum processing threshold
   (e.g., HS change, value-added percentage)

Key Trade Finance Terms

Term	Meaning
T/T (Telegraphic Transfer)	Wire transfer — seller bears credit risk
D/P (Documents against Payment)	Bank releases docs only upon payment
D/A (Documents against Acceptance)	Bank releases docs on buyer’s acceptance of draft
L/C (Letter of Credit)	Bank guarantee — safest for seller
Open Account	Goods shipped; buyer pays later — seller bears highest risk

Practice Quiz

Q1. What is the difference between a Clean B/L and a Claused B/L?

A Clean B/L has no notations indicating damage or discrepancy in the cargo or packaging — banks accept it for L/C payment. A Claused (Dirty) B/L contains remarks about defects, shortages, or inadequate packaging. Banks typically refuse documents with a Claused B/L, which can block payment under an L/C.

Q2. An L/C requires ICC (A) insurance. The seller purchases only ICC (C). Is this a discrepancy?

Yes. The L/C specifies the minimum insurance coverage required. ICC (A) is the broadest; ICC (C) is the narrowest. Using ICC (C) when ICC (A) is required is a document discrepancy, and the issuing bank may refuse payment until the seller provides the correct policy.

Q3. What is the difference between FCL and LCL cargo?

FCL (Full Container Load): one shipper occupies the entire container — more secure, faster, typically lower per-unit cost for large volumes. LCL (Less than Container Load): cargo from multiple shippers is consolidated at a Container Freight Station. LCL is economical for small shipments but involves more handling, higher risk of damage, and longer transit times.