International Trade (Intl Trade) 101: Logistics and Transportation - Port and Terminal Operations, Port Selection Handling Charges Demurrage Detention Storage

What This Is

Port and Terminal Operations are critical components of international trade, involving the handling, storage, and movement of goods through ports and terminals. Effective management of these operations can significantly impact the efficiency, cost, and risk of global supply chains. For instance, a shipment of electronics from China to the US may be delayed due to demurrage charges at the port of Los Angeles, resulting in additional costs and potential losses for the importer.

Key Terms & Rules

• Incoterms 2020: International trade terms that define the responsibilities of buyers and sellers for transportation, insurance, and customs clearance.
• Demurrage: Charges levied on importers for delays in collecting their cargo from the terminal or port.
• Detention: Charges levied on importers for holding cargo at the terminal or port beyond the agreed-upon time.
• Storage: Charges levied on importers for storing cargo at the terminal or port beyond the agreed-upon time.
• Free On Board (FOB): An Incoterm where the seller bears the costs and risks until the goods are loaded onto the vessel.
• Cost, Insurance, and Freight (CIF): An Incoterm where the seller bears the costs and risks until the goods are delivered to the buyer's destination.
• Bill of Lading (B/L): A document issued by the carrier that serves as a receipt for the goods and evidence of the contract of carriage.
• Harmonized System (HS) Codes: A standardized system for classifying goods for customs purposes.
• Port of Discharge (POD): The port where the goods are unloaded from the vessel.
• Port of Loading (POL): The port where the goods are loaded onto the vessel.

Step-by-Step Process

1. Determine the Incoterm: Identify the Incoterm used in the sales contract to determine the responsibilities of the buyer and seller.
2. Calculate Handling Charges: Determine the handling charges, including demurrage, detention, and storage, based on the Incoterm and the terms of the sales contract.
3. Verify Documents: Ensure that all necessary documents, including the Bill of Lading and commercial invoice, are in order and comply with the terms of the sales contract.
4. Clear Customs: Clear the goods through customs at the Port of Discharge, ensuring compliance with all relevant regulations and laws.
5. Arrange for Storage: Arrange for storage of the goods at the terminal or port if necessary, and pay any associated charges.

Common Mistakes

• Mistake: Confusing Demurrage and Detention.
• Correction: Demurrage is charged for delays in collecting cargo, while Detention is charged for holding cargo beyond the agreed-upon time. For example, if a shipper delays collecting their cargo for 5 days, they will be charged demurrage for the entire period, but if they hold the cargo for 10 days beyond the agreed-upon time, they will be charged detention for the additional 5 days.
• Mistake: Assuming that FOB means "Free On Board" for air freight.
• Correction: FOB only applies to sea and inland waterway transport, not air freight. For air freight, the correct term is "Free Carrier" (FCA).
• Mistake: Misusing the term "Free On Board" (FOB) to mean "Free Carrier" (FCA).
• Correction: FOB specifically refers to sea and inland waterway transport, while FCA applies to all modes of transport.

Exam / Certification Tips

• Tricky Distinction: Understand the difference between FOB and FCA, and when each is used.
• Confirmed vs Unconfirmed LC: Know the difference between a confirmed and unconfirmed Letter of Credit (LC), and when each is used.
• DPU Successor to DAT: Understand the difference between DPU (Destination Port Unloaded) and DAT (Destination Arrival Terminal), and when each is used.

Quick Practice Scenario

A Chinese exporter sells goods to a US importer under FOB Shanghai. Who pays for the main carriage?

Answer: The buyer (US importer) pays for the main carriage. Explanation: Under FOB, the seller bears the costs and risks until the goods are loaded onto the vessel, but the buyer is responsible for the main carriage.

Last-Minute Cram Sheet

• Incoterms 2020: Define the responsibilities of buyers and sellers for transportation, insurance, and customs clearance.
• Demurrage: Charges levied on importers for delays in collecting their cargo.
• Detention: Charges levied on importers for holding cargo beyond the agreed-upon time.
• Storage: Charges levied on importers for storing cargo beyond the agreed-upon time.
• FOB: Seller bears costs and risks until goods are loaded onto the vessel.
• CIF: Seller bears costs and risks until goods are delivered to the buyer's destination.
• Bill of Lading (B/L): Document issued by the carrier that serves as a receipt for the goods and evidence of the contract of carriage.
• Harmonized System (HS) Codes: Standardized system for classifying goods for customs purposes.
• Port of Discharge (POD): Port where goods are unloaded from the vessel.
• Port of Loading (POL): Port where goods are loaded onto the vessel.
• Under FOB, risk transfers when goods are on board the vessel – not at the port gate or on the dock.