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close this bookExport Marketing for a Small Handicraft Business (Oxfam, 1996, 192 p.)
close this folder9 Despatching export consignments
View the document9.1 Exporting and importing formalities
View the document9.2 International transportation
View the document9.3 Methods of payment
View the documentSummary

9.2 International transportation

There are four main methods of international transportation: air freight, sea freight, air parcel post, and sea parcel post. Each has advantages and disadvantages.

Sea freight

This is the most common method used in the international handicraft trade. The cost of the ocean journey is almost always cheaper than the equivalent journey by air freight. A consignment sent by sea is charged according to its volume, or measurement. There might be a minimum charge, so that very small consignments would actually pay as much as larger ones. Increasingly, sea freight has become containerized. This means that a consignment is sent in a sealed metal container. If an exporter books a container, the same rate is paid whether it is filled or not. Containers have the advantages of offering better protection against pilferage or loss, requiring the contents to be less extensively packed, and charging less per cubic metre than general cargo. A great deal of Oxfam Trading's imports are containerized. The method also makes unpacking easier in our warehouse. There are two sizes of container: 20 feet long (26 cubic metres volume) and 40 feet long (55 cubic metros).

Nevertheless, sea freight has certain disadvantages. Consider these comments from our supplier in Cameroon:

'Quite a good number of our big partners in USA and Europe are now turning to sea freight. Of course, this can be understood because the lower the landing charges, the better the chances are of selling our products. We can already see that shipping light items like baskets, calabash rattles, etc. by sea can equally be expensive. Sea-worthy cases are expensive to make. The shipping agents are not flexible. The processing of documents for sea freight is slow and time consuming. Several trips have to be made to Douala, the sea port, before a consignment leaves the port. Charges from forwarding companies are equally high. Quite some money has to be invested in wooden cases. This ties up capital. Sea freight and other handling charges must be paid to the agent before the consignment is taken on board. This situation needs an increase in working capital. It takes quite some time for a customer to get his consignment by sea before making arrangements to send us money. How cost effective is this method?

Cameroon is a country with a sea port. Clearly the situation is worse for a landlocked country, from which freight must travel a long way by road to the port of another country. In some countries, this is logistically so difficult that sea freight is not a viable option.

These additional packing and internal transport costs may make sea freight less competitive than air freight. Where an exporter is situated closer to the international airport than the port, then even within the same country, the relative cost needs to be looked at carefully. For example, Oxfam Trading imports a number of products by air freight from Kenya. This is because the air freight rates from Nairobi to London are quite low, and packing and internal transport costs for despatch from the capital to the seaport of Mombasa quite high. However, in general, more than three-quarters of our freight arrives by sea, and we save several thousand pounds each month by using sea rather than air. Of course, sea freight is slower than air freight. Sometimes it is important to receive a consignment quickly, even if this will incur a higher freight cost. But it is the importer who must decide. For example, an importer would be annoyed to receive a consignment by air freight two months earlier than the delivery date, when it could have been sent more cheaply by sea freight. As always, the exporter must follow the customer's instructions on the order, unless there is a good reason to suggest a change.

Importers generally appreciate containerized consignments being sent on pallets. These are wooden platforms on to which the goods are placed. They can be easily unloaded by fork-lift trucks, which saves warehouse time and therefore cost. Most freight is palletised for overland transport. The standard pallet size is 40" by 48" and about 6" high. A pallet has small legs in each corner, allowing access by the forks of the truck to any of its four sides.

Sea freight was, of course, in existence for centuries before the invention of the aeroplane. The system of documentation employed today in sea freight is based on traditional methods. The bill of lading was formerly kept by the ship's captain, who was responsible to the exporter for collecting payment from the importer. Only when payment was made did the captain release the cargo. In exactly the same way today, the bill of lading acts as a deed of title to the goods. Without the original copy of it, the importer cannot rceive the consignment. The difference between tradition and modern practice is that payments are now handled by banks, not shipping line,, and that the original bill of lading is given to the exporter when the shipping line issues it. It is now the exporter's responsibility to ensure that it is forwarded to the importer in good time for the arrival of the ship.

The cost of sea freight varies among shipping lines. Many of them belong to an association known as Conference, and charge the same rate per volume. Even so, because of frequency of sailings, or amount of cargo, some Conference lines can offer a better rate on some routes by consolidating different consignments into containers. The cost of containers on the same route can be different among different companies. There are shipping lines who are not members of Conference, and who tend to undercut the rates. It is important to consider not just rates but also service. Exporters and importers need reliable shipping lines, who offer frequent sailings, and comply with their timetables. Conference lines publish schedules which enable exporters to plan despatches. An exporter or its freight forwarder has to keep in touch with the different lines to be sure that it is up to date with the best service for any particular destination.

Air freight

The airway bill is not as important as the bill of lading. It does not act as a deed of title to a consignment. An importer does not need the original copy in order to be able to claim the goods. But at least one copy is required as a record of the details of the consignment and the charges made for transporting it.

Unless a contract is made whereby the exporter is responsible for the freight cost, such as CIF, then the cost of international transport is the importer's responsibility. However, it is the exporter who arranges the actual despatch. A potentially difficult situation results, in which the party which negotiates the rates does not actually pay the bills. The first information the importer will have about the freight rate is on the bill of lading or airway bill. The rates for air freight are generally more variable than those for sea freight. There are more opportunities for getting special rates. It is therefore especially important that these are carefully investigated and negotiated. Oxfam Trading has often paid a certain rate, only to find when visiting the exporting country that a better rate was available. It cannot be assumed that an agent will automatically locate the best rate, although a good one will. An exporter needs to make its agent aware that it, too, is keeping a check on rates charged by other agents. The threat of competition for business is always a good motivator for more efficient performance.

As with shipping lines, airlines have an association, the International Air Transport Association (IATA). This has standard cargo rates. Air freight is charged according to weight, unlike sea freight. The higher the weight, the lower the rate per kilogram. The highest rate is charged for consignments less than 45 kg. There is a second rate for weights between 45 kg and 100 kg, a third for 100 kg - 500 kg, and a fourth for more than half a ton. The rates vary according to destination, of course. However, as in sea freight, the rate might be the same over quite a large range of destinations, for example, all western Europe.


Fig. 30: A bill of lading

The scope for reductions from the standard rates come in four ways. First, as in sea freight, certain airlines can consolidate cargo on some busy routes and offer more favourable rates. Second, just as there are non-Conference shipping lines, so some airlines do not belong to IATA and can offer cheaper rates. Third, and most importantly, there is a system of commodity rates in airfreight. These are special rates negotiated by governments for exports of particular importance. These can often include certain types of handicrafts. Finally, there are, in addition to scheduled services, chartered cargo flights. These are flights booked by companies especially for the transportation of goods, because it might be more efficient for them to do this than to send the goods on scheduled services. Sometimes additional space can be available on such flights, at low cost, for handicrafts.

Although air freight rates are levied according to weight, there are maximum volumes that are accepted against these weights. If the volume is greater, then a volumetric surcharge is added. For example, a consignment of large bulky baskets weighing just 50kg might be charged as if they weighed twice that amount. This surcharge would not always apply on charter air freight.

Handicraft consignments which are not volumetrically large, and which can obtain a favourable rate, perhaps a commodity rate, can often be sent economically by air freight. There are other advantages. As the supplier in Cameroon points out, the payment should be made more quickly; although that depends on the method of payment agreed. There is not normally a need to pack as protectively. For example, a manufacturer of ceramics in Peru charged 10 per cent on top of the ex works price for air freight packing, and 20 per cent for sea freight packing. An exporter should try to make available an economic air freight option if at all possible. There may be times when an importer needs the speed it offers, without wanting the penalty of removing the profit from the consignment because of high freight costs.

Parcel post

When a consignment is sent by air or sea post, the formalities are simpler. Only small packages may be sent by post. There are limitations in two respects:

Weight: parcels may not exceed a certain weight. This is normally 10 kg for air post, 20 kg for sea post; but it might be different in certain countries. If a consignment is heavier, it must be split up into different parcels.


Fig. 31 An airway bill


Fig. 32: Measuring and addressing a parcel for export

Size: there is usually a restriction on both length and length plus girth for any parcel. These are measured as shown in Figure 32.

Parcels for export are despatched at main post offices. They must be marked with the importer's name and address, and also the exporter's. If there is more than one parcel in the same consignment, it must be marked accordingly. The exporter will be required to make a declaration of contents and value. Parcels are subject to random inspection by customs. In a number of countries, a post office official inspects the contents before sealing the parcel.

Parcels may be sent by sea or air. The former is considerably cheaper, but the slowest of all the freight methods. Air parcel post is usually quick. It is a convenient method for importers to receive a small consignment. However, it is much less convenient for larger consignments, broken up into several parcels. These can often get separated in transit. Also, it is expensive. The rate per kilogram is invariably higher than that for air freight.

Small consignments can usually be transported more cheaply by post than by freight. Even if the postage cost itself appears higher, the overall cost would be lower because it does not incur customs and agency charges. However, the larger the consignment, the less those charges are relative to the invoice value and the more important is the actual rate for transporting the goods. So larger consignments may be less economical by post. Parcel post is also less secure. In some countries, the postal system is so bad that exporters simply will not use it.

Unlike freight, parcels cannot be sent on the basis that the importer pays the postage. This must be paid at the time the exporter hands over the parcel. If a consignment is being sent on an ex works or FOB basis, the charge for the postage should simply be added to the invoice, or invoiced separately. Figure 33 illustrates the costs of the various options, in an example produced by the Kenyan government.

Two points emerge clearly:

· for larger consignments, air parcel post is not economical;
· sea freight becomes more advantageous as the consignment gets larger, but for smaller consignments air freight or air parcel post is cheaper.

These conclusions would be generally valid for most international freight. However, the circumstances will be different in particular countries. In the interests of offering the most efficient and cost effective service to your customer, you must take the trouble to research the freight options. The price which the importer works with is the price into its warehouse. Freight and clearing charges are part of the buying price. If these costs can be reduced, the importer can sell more profitably, or reduce its own selling price. Either way, the possibility of the exporter receiving more orders is improved.

Fig. 33: Comparative cost of options for international freight

Estimated comparative cost (Kenyan shillings) of shipping a mixed order of handicrafts from Nairobi to New York
(Mixed goods are wood carvings, Kisii stone items, leather items and sisal baskets)

Gross Weight

Air Parcel

Sea Parcel

Air Freight

Sea Freight

of order

Post

Post



1

2

2

3

4

20kg

785.5

205.0

1096.0

2595.0

100kg

3927.5

1025.0

2390.0

2595.0

450kg

17673.0

4612.5

8800.0

2595.0

1000kg

-

-

17600.0

2595.0

Notes:

1 Does not include packing costs.
2 Order is divided into separate parcels, none exceeding 10kg.
3 Cost of air freight only: does not include agency fees or local transport charges.
4 Based on 1000kg/cubic metre crate with handling charges between Nairobi and Mombasa.
(Insurance not included in calculations.)