Logistics in

International Business

Prof. V. P. Arora
Associate Profesor

LEGAL ASPECTS OF CARRIAGE

OF GOODS BY SEA AND BY AIR
In recent times, the entire procedure and
documentation process has undergone a
major change due to containerization and
use of multimodal transportation. A typical
sea bound multimodal cargo has to cover
various steps between the point of origin to
the final destination. The following flow
diagram depicts the various transit steps of
the cargo.

Manufacturer

Cargo by Road / Rail

Inland Container Depot

Cargo by Road / Rail

Port of dispatch

Cargo by Sea
Port of Destination

Cargo by Road / Rail

Importer

At each point, the cargo is handled by a different agency and

the responsibility of the cargo keeps on shifting from one
agency to another. From legal point of view, it is important for
the contract of freightment / transport document to cover the
various aspects such as responsibility , liability, jurisdiction,
limitation of liability, remedies etc.
A shipper may avail the services of a shipping line in two ways.
He loads his cargo in a ship which has a predefined voyage or
route and which accepts the goods from any shipper to be
taken to any port of call during the voyage. Such a ship is called
General Ship.
Alternatively, the shipper can hire the whole vessel to carry the
cargo exclusively for him. Such a ship is called Vessel on
Charter Party.

Carriage of Cargo on A General ship In case of a General ship, the shipping line advertises its
voyage through the newspaper and their freight
brokers. This advertisement announces the dates of
arrival and departure of the ship from a particular
port, final port of destination, ports of call enroute
etc.
The shipper books the cargo through his C & F
Agent/freight broker, who prepares the Bill of lading,
gets it signed by the representative of the shipping
line, and loads the cargo on board the ship
Responsibilities and Liabilities The Shipping Line
The shipping line, by virtue of being the custodian of the
cargo has tremendous responsibility towards the
shipper. To fulfill such responsibility adequately the

1. The ship is seaworthy to undertake the proposed voyage.

2. The Ship is adequately staffed and suitably equipped.
3. The cargo holds, refrigerators, cold chambers and all other critical
parts and equipment of the ship are in good condition and the
ship is safe to operate.
4. The ship has adequate facilities to safely handle, carry, store and
care for the cargo during the voyage.
5. The shipping line must issue a Bill of Lading confirming the
receipt of cargo and the apparent condition in which the cargo is
received. The bill of lading must also show the container
number/shipping marks for easy identification of the cargo. The
Bill of lading furnished by the Master of the ship is the prima facie
evidence of the receipt of the goods by the carrier.

CHARACTERISTICS OF BILL OF LADING

1.Bill of Lading is the evidence of the contract of freightement. It is
only an evidence of contract and not a contract by itself. In case
there is a dispute between the shipper and the ship owner regarding
the carriage of the goods, the court considers not only Bill of Lading
but also any other contract between the two parties as evidence.
2.Bill of lading is the document of receipt of the goods given by the
representative of ship owner while taking charge of the consignment.
If the goods are received without any damage or apparent defect
Clean Bill of Lading is issued. But in case the representative of the
ship owner is not satisfied with the condition of cargo, he may put his
adverse remarks on the Bill of Lading. In such case, Bill of Lading will
be called a dirty Bill of Lading or Claused Bill of Lading. In such
case the bank may not accept this document and can refuse the
payment.

3.

Bill of Lading is the document of title, which means that anyone in the
possession has the title to the goods. Bill of Lading is a negotiable or
transferable document. An endorsement in favour of the buyer passes
the title of the goods to him.

TYPES OF BILL OF LADING

1.

Received for shipment Bill of Lading :- A bill of lading, which confirms

the receipt of goods by the carrier, but not their actual loading on board.
A received for shipment bill of lading can be accepted under letters of
credit only if this is specifically permitted in the letter of credit, or if the
credit stipulates a document covering multimodal transport. Otherwise,
received for shipment bills of lading must show an additional on board
notation in order to be accepted as an ocean bill of lading.

2.

Clean bill of lading :- is a bill of lading where the carrier has noted that
the merchandise has been received in apparent good condition (no
apparent damage, loss etc.)

3.

Claused bill of lading :- is a bill of lading, which contains notation, which

specifies deficient conditions of the goods and/or packaging.

4.

Negotiable bill of lading :- is a bill of lading, which can be transferred by

endorsement. A copy of bill of lading is utilised either for the transfer of
title to the goods or realisation of the money. The opposite of negotiable
bill of lading is straight bill of lading.

5.

6.
7.

Straight bill of lading :- indicates that the shipper will deliver the goods
to the consignee. The document itself does not give title to the goods.
The consignee has to only identify himself to claim the goods. A straight
bill of lading is often used when payment for the goods has been made in
advance.
Through bill of lading :- is a single bill of lading covering receipt of the
cargo at the point of origin for delivery to the ultimate consignee using
two or more modes of transportation.
Charter party bill of lading :- is issued by a charter party. They are not
accepted by the banks under letters of credit unless they are specifically
authorised in the credit

CHARTER PARTY

Charter party or charter agreement is a contract between a shipper and a

shipping company under which an entire ship or some part of it is booked
by the shipper, also called charter for carrying the goods on a determined
voyage to one or more places or until the expiry of a specified period.
A charter party agreement can be done on various basis e.g. on the basis of
time or on the basis of defined voyage etc. Following are the different
criteria's for a charter party agreement :1.

Voyage Charter Party :- In this case the shipper books a particular ship
for a designated voyage to one or more destinations. In this contract the
ship owner has to declare the condition capacity and other details of the
ship. The owner has to guarantee the sea worthiness of the vessel.

The ship should be sea worthy for a particular cargo and for a particular
voyage. The ship also had to compete the voyage in a reasonable time
frame. The deviation from the route can be made only in case of
emergency.
2.

Time charter party :- As the name suggests the ship is booked for a fixed
period of time in this case. Here the ship owner under an agreement
provides the ship to the shipper for a fixed duration, which is mutually
agreed. The agreement also mentions size, capacity and speed of the
ship along with ports is the responsibility of the ship owner to arrange for
the crew and pay crews wages. Also ships insurance, fuel, dock charges
loading and unloading charges of the cargo are the responsibility of the
ship owner.

3.

Charter party by demise :- Under this agreement the vessel is leased by

the ship owner to the shipper, whereby the shipper/charterer gets the
possession and control of the ship during the lease period. Charter has
the freedom to select the route and operate the vessel accordingly. In
such case ship owner has no liability towards the goods loaded and the
crewmembers of the ship become the employee of the charter during the
lease time.
Bareboat Charter:- A contract where the charter party has the right to
use his own Captain and crew on the ship.

4.

DIFFERENCE BETWEEN CHARTER PARTY AND BILL OF

LADING
1.

The main difference between the charter party and bill of lading is that
bill of lading represents the title of the goods. By endorsing the Bill of
lading the ownership of the goods can be transferred from one party to
another. Charter party on the other hand is only a contract of
affreightment for the carriage of goods between the shipper and ship
owner.

2.

In case a bill lf lading is issued to a charterer who is also a shipper under

shipper the contract, then the bill of lading will only be a receipt of goods
placed on board by the representative of the ship owner also called the
master of the vessel. In such case the charter party is governed by the
terms of contract of carriage of goods between the owner and the
charter.

3.

When a charter party contract is followed by issuance of a bill of lading

any dispute between the charterer and the ship owner will be decided on
the basis of bill of lading only. It is because a bill of lading is a
subsequently document and the law will presume that is was
subsequently mutually agreed between the buyer and the seller to treat
the charter as null and void. The bill of loading is considered the to
embody all the conditions of the new agreement.

Contract of Affreightment
Binding agreement which sets forth the obligations
and rights of the owner of a vessel (aircraft or ship)
and a merchant. The vessel owner undertakes to
provide cargo-space (at a specified time, and for a
specified freight) to the merchant who is liable
for payment whether or not the cargo is ready for
shipment. This contract addresses issues associated
specifically with a vessel, its crew, and the routes on
which it will be plied. Also called contract of
freightment.

INTERNATIONAL CONVENTIONS ON CARRIAGE OF GOODS &

INTER MODAL TRANSPORT
In order to regulate international carriage of goods various international
conventions were held. Among them Hamburg rules determine the
extent of liability of a carrier and a shipper issuance of goods and
procedure for claims etc. These rules provide the formula for calculating
the liability of the carrier and stipulate that any arbitration or legal action
must be initiated within two years.
Other important conventions are :Hague Rules :These rules govern liability for loss or damage to goods carried by sea under
a bill of lading. These rules were agreed in 1924 during an international
convention at Brussels. The main features of the Hague rules are as
follows:A Carrier may offer the minimum terms for the carriage of all goods other
than live animals, non-commercial goods (personal and house hold
goods), experimental shipment etc.
The carrier must provide a seaworthy vessel at the beginning of the voyage,
and must take due care of the cargo during transit. In case of loss or
damage, the carrier is only liable for loss or damage caused by his own
negligence, or that of his servants, agents or subs contractors, The
maximum liability was fixed Pound Sterling 100 per package in case of

Hague-Visby rules
These rules came into effect in 1968 as a result of some amendments in the
Hague rules. These rules were mainly concerning the maximum liability in
case of loss or damage. Hague-Visby rules were applicable to all bills of
lading, where the port of shipment is in a ratifying nation.
Hamburg rules
The Hamburg rules were adopted in March 1978 in an international
conference. The major features of the Hamburg rules are as follows :1.The carrier is responsible for loss, damage or delay to the goods unless he
proves that all the precautions to avoid the occurrence had been taken by
him, his servants or his agents.
2.If the goods are delivered at the port of discharge within the agreed time,
the carrier is not liable for delay in delivery.
3.The amount of liability was increased by 25% more than the liability
defined under the Huge-Visby rules.
4.The Hamburg rules are applicable to all contracts of carriage by se, except
charter party contracts.
5.The Hamburg rules cover shipment of live animals and deck cargo, which
Hague and Hague-Visby rules did not cover.

6. The Hamburg rules applied to both imports and exports to and from a
signatory nation, where as the Hague and Hague-Visby rules apply only to
exports.
As can be seen the above convection addressed to the various provisions
under carriage by se, rail and road. However the United Nations
Convention for the international combined transport of goods also called
TCM convention for the first time tried to make a framework of rules for
inter modal transport. This conventions was adopted by the UN conference
on 24 the may 1980. Some of the significant changes brought about by
this convention are as follows :
1. It introduced single contract between the shipper and the carrier
irrespective of any number of modes of such transport.
2. It introduced Multimodal Transport Document also called MTD as a
replacement to the bill of lading.
3. It made MTD as the document of title.
4. It simplified custom regulation to facilitate cross border trade.

5. It introduced single party responsibility throughout the voyage, even if the

cargo is carried by several carries.
6. By enforcing the liability of Multimodal Transport Operator (MTO) more
strictly than of the conventional carrier in shipping law.
7. By making MTO liable for loss or damage due to delay in transportation.

This UN convention was not ratified by India. Instead it adopted

Multimodal Transportation of goods act, 1993, which was more in
line with the maritime trade proactive prevailing in India. Another
reason for not ratifying the UN Convention was that it would not
have served any purpose because it was not converted in to an
international law.

Concept of Unitisation
One of the main concerns of a manufacturer is damage of goods
during loading and unloading and times consumed in these
activities. They constantly look for avenues to reduce these
concerns. One of the methods of doing so is that of combining
packages into a unit. This lends itself to mechanical handling and
reduces the number of handlings which the package would have.
Literally speaking, in unitization the products and grouped together
in cartons, bags and barrels for handling efficiency. But specifically,
the containers used to group individual products are called master
cartons. When these master cartons are grouped together it is called
unitization. For examples, Pears comes in a box. This is called the
individual package. But it is delivered to the dealer in a combined
package of 100 or more soaps . This is called master carton. These
master cartons are then grouped together in a box, by some rope etc.
to form one unit for shipment purposes. This is called unitization.

Unitisation is based upon the theory that all shippers

should pack their cargo so it may be moved and
handled entirely by mechanical equipment, such as lifts
and cranes, throughout the distribution network. This
practice reduces the need for labour, the handling of
boxes, and the amount of damage. Also, it allows for
faster loading and unloading by transportation
equipment, more efficient distribution centre operations
and a reduced level of pilferage. The reduced costs of
the distributor in terms of labour and time often result
in cost discounts for the retailer.

In practice, the unit load concept means that small, highly

expensive items such as calculators, should first be totally
enclosed in wooden boxes, or double, even triple wall containers
to avoid pilferage and damage. Second, the boxes or containers
should be secured to pallets with shrink-wrap or steel strapping.
Large items can be secured directly to pallets, assuring that they
are adequately protected from damage.
Unitising leads to:
Economy
Greater speed of handling
Decreased damage to the material
Safety
Less chance of pilferage
Protects against environmental variables
Efficient untillsation of space

Container Terminal
A container terminal is a facility where cargo containers are
transshipped between different transport vehicles, for onward
transportation. The transshipment may be between container
ships and land vehicles, for example trains or trucks in which
case the terminal is described as a maritime container terminal.
Alternatively the transshipment may be between land vehicles,
typically between train and truck, in which case the terminal is
described as an inland container terminal.
Maritime container terminals tend to be part of a larger port, and
the biggest maritime container terminals can be found situated
around major harbours. Inland container terminals tend to be
located in or near major cities, with good rail connections to
maritime container terminals.

Both maritime and inland container terminals usually

provide storage facilities for both loaded and empty
containers. Loaded containers are stored for relatively
short periods, whilst waiting for onward transportation,
whilst unloaded containers may be stored for longer
periods awaiting their next use. Containers are normally
stacked for storage, and the resulting stores are known as
container stacks.

Container Freight Station (CFS)

A shipping dock where cargo is loaded (stuffed) into
our unloaded (stripped) from containers. Generally,
this involves less than containerload shipment, although
small shipment destined to same consignee are often
consolidated. Container reloading from / to rail or
motor carrier equipment is a typical activity. These
facilities can be located in container yards, or off dock.

AGENCIES RELATED TO
SHIPPING INDUSTRY
The entire logistic chain functions smoothly if there is a good co-ordination
between various agencies. The exporter and the importer could be far away
from each other on different continents. They conduct their business through
various intermediaries. These include clearing and forwarding agents,
logistics companies, road transporters; warehousing corporations, shipping
lines, port authorities etc. In addition to these, various government agencies
such as Customs & Central Excise department, Sales Tax department,
Municipal Corporations etc. are also involved. The passage of cargo becomes
smooth if there is a clear understanding and a good co-ordination between
all these agencies. The exporter wants to despatch the cargo and obtain the
shipping documents and entrust the cargo to the agencies who can ensure
the smooth passage of cargo. Importer on the other hand is concerned with
safe arrival of the cargo ordered by him.
To facilitate the smooth and trouble free passage of cargo from the point of
manufacture to the destination, following agencies help the shippers-

A. CLEARING & FORWARDING AGENT C & F AGENT

C & F Agent is an important link between the exporter and various other
agencies. Activities of a C & F agent are as follows :1.

C & F agent works closely with the shipper right from the offer stage. He
provides freight rates to various destinations and also informs the
shippers about the most economical modes of transportation. He also
advises the most cost effective routing advice for the destination.

2.

Once the order is received by the shipper, C & F agent makes the ship
booking keeping in mind the last date of shipment on the letter of credit.

3.

As the despatch dead line approaches C & F Agent estimates the transit
time between the factory and the port of shipment as mentioned in the
L / C. He advises the despatch date from the factory to the shipper so
that the cargo reaches the port right in time. If the cargo reaches too
early, it attracts demurrage charges. On the other hand, if the cargo
reaches late, it may miss the ship, thereby causing the delay. Such
delays are inconvenient and expensive to both the importer as well as
exporter.

4.

Once the goods are despatched from the factory, the C & F Agent
intimates the shipping line regarding the expected arrival schedule of

goods at the port, along with the mode of inland transportation. He also
completes the octroi formalities (wherever necessary) so that the export
goods are not subjected to octroi duty.
4.

C & F Agent then applies for and secures port permit so that the goods
can enter the port premises. At the same time, the export declaration
showing the names of shipper & consignee, value of the goods and
commodity classification number etc. are prepared.

5.

After this, the C & F Agent prepares bill of lading in compliance with the
terms and conditions of the sale / letter of credit.

6.

After this, the bill of lading is submitted to the shipping company and the
cargo is loaded on board the vessel. The shipping companys
representative examines the cargo for its condition & signs the bill of
lading accordingly. In case of C & F and CIF contracts the ocean freight is
also paid at this stage and the Freight Prepaid seal is obtained on the
bill of lading.

7.

C & F Agent then collects all the documents such as bill of lading,
customs certified invoice, consular invoice, certificate of origin etc. from
the respective authorities and sends them to the shipper for further
negotiations of documents as per L/C conditions.

The above activities ensure that the shipper can effect his shipment in time
and in the most efficient manner thanks to the various services and advice
provided by his C & F Agents. C & F Agent plays a vital role in fulfilling the
various delivery commitments made by the shipper to the importer abroad,
there by ensuring repeat orders and growth in business for the shipper.

B.FREIGHT FORWARDERS
For international cargo movement the exporter needs an expert
with
knowledge of various formalities and contacts with various agencies such as
shipping lines, port authorities, customs, warehouses etc. Freight forwarder
possesses such contacts and knowledge for the benefit of the shipper.
Normally, freight forwarder prepares the shipping documents on behalf of the
shipper. With the advent of containerisation and the new developments in the
shipping industry, many freight forwarders now offer extended services as
transport operations for inland transportation as well as multi modal inland
and ocean bound transportation. These freight forwarders are called as nonvessel operation common carries (NVOCCs) and are authorised to issue
transport documents. Freight forwarders perform the following functions :-

Arranges transport services and prepares documentation.

 Advice the shippers on the best and the most economical model/s of
Transportation.

As a multi modal transport operator (MTO) he assumes the direct

responsibility for the carriage of goods on door-to-door basis. He is liable
also for those segments of transit where he himself may not be the
operator.

Provides other specialist services such as packing, containers stuffing /

destuffing customs clearance etc.

Outsourcing and Third Party Logistics

Providers (3PLs)
Outsourcing is one of the important features of the
supply chain management. In logistics and supply chain
management too, firms have been outsourcing the
activities of transportation, warehousing, clearing and
forwarding to different operators. But the entire package
of services transportation, warehouses management,
bills and order processing was something that was not
offered by many companies.

Logistics providers around the world as well as in India,

are offering a suite of services that includes logistics
planning, developing customized logistics solutions,
implementing solutions, warehousing management,
shipment consolidations, carrier selections, rate
negotiation, fleet management, logistics information
systems, reverse logistics, order fulfillment and
processing, inventory management, multi-model
transportations, value-added services like tracking and
tracing or the shipment, relebelling /repacking, product
assembly and testing supply chain management, freight
forwarding, consultancy, etc.

Outsourcing and 3PLs provide several advantages for the long-run

strategies cores competency of the firms which are as follows.
Cost Reduction
3PL providers are specialized service providers with core
competency in managing logistics operations. Just as an auto or a
consumer durable company has manufacturing expertise, 3PL
provider offers benefits of economies of scale and lesser cost of
services.
Maximizing Revenues
By outsourcing the logistics function, companies are able to
concentrate on their core areas and can utilize both financial and
non-financial resources where it can maximize returns. The 3PL
providers take care of routine work that frees human resources and
time spent on routine functioning.

Facilities
Providers have entered into specialized operational research
models to quantify the impact on the cost for different patterns for
the distribution chain for any combination of multimodel
movement under given cost parameters.
Cost Control
Controlling costs is distinct from reducing costs. A companys
primary concern is to control costs and then think of reduction.
While individually, these kaizen or cost-control measures may
not transform into tangible results but collectively, all the
companies stand to gain in the long run.
Working Models
First and the most widely used model in India even today is of
internal purchase, sales and dispatch departments that handle all
the commercial and sourcing functions for the company.

The second model is that of a separate logistics department

that handles all the logistics activities of transport, inventory,
warehouse management and co-ordinating with suppliers and
its client- which may be the company itself.
The third option is of outsourcing the entire logistics function
to a third party that specializes in logistics management.
Except for automotive, no other industry is currently utilizing
the services of a 3PL, which reveals the state of outsourcing
in India. In FMCG, paints and consumer durables companies
in India, the C&F agents are doing the job of logistics
providers so the companies do not feel the need to outsource.
In case of cement and steel, none of the companies have gone
for 3PL services.

Fourth-Party Logistics Providers (4PLS)

In todays industrial scenario, there has been an unprecedented
increase in customers demand for better service and on-time
deliveries at reduced cost.
The 4PL is a supply chain integrator that assembles and manages
the resources, capital, technology and capabilities of its own
organization and other organizations who provide complementary
services to design, build, and deliver a comprehensive supply
chain solution.
4PLs have evolved because of constraints faced by the 3PLs. It
leverages the competencies of 3PLs and business process manages
to deliver a supply chain solution through a centralized point of
contact. As the 4PL caters to multiple clients, the investment is
spread across clients, thus, taking the advantage of economies of
scale.

The fourth-party logistics 4PL responds effectively to the

broad complicated need of todays organizations by
delivering a comprehensive supply chain solution. This
solution is focused on all elements of supply chain
management, continuously updated and optimized
technology and is tailored to specific client needs.
With the advent of ITs role, the effectiveness of fourthparty logistics can be greatly enhanced by implementing
systems at all levels ERP, DSStransactional and
functional.

EXPORT DOCUMENTATION IN AIR

TRANSPORT
Invoice This contains the names of exporter, importer, airport of dispatch,
airport of destination, description of goods, their respective quantities and
values, IEC number of exporter, GR form number etc.

Packing list This contains all the information in the invoice (except
value), plus the number of boxes, their gross weight and net weight,
shipping mark, if the cargo is containerized, then the container number is
mentioned. This list facilitates the customs examination.

Guaranteed Remittance (GR) form This is an exchange control

form issued by RBI. By signing this form, the exporter commits himself to
realize and bring to India the foreign exchange equivalent to invoice value
within the specified time limit of RBI. This form is to be submitted in
duplicate.

Airway bill It is equivalent to Bill of Lading, except that it is NOT a

document of title of goods but it only acts as receipt of goods for dispatch.
It mentions names of the airports of dispatch and destination, names and
addresses of consignor and consignee, name of air carrier, freight amount,
date and number of the flight etc.

Airway bill is a contract between the shipper or his agent, and the
airline or its agent. It contains instructions for the airline handling
staff. It also acts as a custom declaration form and in case insurance
amount is included on the Airway bill, it serves as certificate of
insurance. Since the freight charges are also mentioned, it acts as
freight bill also.
Shipping bill This is a customs document and not to be confused with
airway bill. It is classified in terms of drawback goods, dutiable goods and
duty-free goods.