When transporting U.S. agricultural products overseas, the shipper ideally looks for the fastest and most efficient mode(s) of transportation that will deliver the shipment in perfect condition at the lowest possible cost. The actual selection will be a compromise among these factors. The mode(s) of transportation may be specified by the buyer or selected by a systematic approach in which the buyer's requirements, import regulations of the destination country, terms of sale, speed of delivery requirements, and destination and available routes determine the mode. Although most moves use a combination of transportation options--truck, rail, ocean, and air--the following is a look at ocean and air shipping options.
Bulk | Breakbulk
| Containerized
| The
Shipping Act of 1984 | Tariff |
Routes
| Charters
| Rates
Basic
Rate | Ancillary
Charges | All-Inclusive
Rate | Containers
| Independent
Action |Service
Contracts
Loyalty
Contracts | Negotiating
Skills | Complaints
Ocean Container Specifications Table
Harbor
Maintenance Fee (HMF):
Summary
| Background
| Seeking
Refunds
Tariff
| Schedules
| Booking
Space with the Airlines | Rates
Containers
| Negotiations
| Hazardous
Materials
Air Container Specifications Table
Ocean transportation takes longer than movements by air, but the cost of transportation is usually lower. There are three means of shipping products by ocean vessel--bulk, breakbulk, and containerized. The means you select depends on the type of cargo you are shipping and the size of the shipment.
Bulk--Bulk carriers haul full shiploads or full hulls of dry or liquid bulk cargoes such as grain, logs, fertilizer, and vegetable oil.
Breakbulk--Breakbulk cargo is loaded on and off a vessel by individual piece or bundle of cargo such as palletized cargo. Breakbulk ships can handle either dry or refrigerated cargo.
Containerized--Product is loaded into containers and moved from door to door without the contents being handled. Container vessels can handle both dry and refrigerated cargo. Containerized shipments are the most common mode of transportation for high-value or value-added agricultural exports.
Because this publication is geared towards the movement of high-value or value-added agricultural products, the remainder of this section on ocean cargo will look primarliy at factors relating to containerized shippments.
The Shipping Act of 1984--The Shipping Act of 1984 has a broad regulatory scope, embracing a wide range of maritime activities. The act affects ocean ports, marine terminal operators, freight forwarders, importers, and exporters. The primary objective of the act is to regulate international ocean common carriers operating to or from U.S. shores. The ocean common carrier (or liner) industry is comprised of domestic and foreign firms that operate vessels on regularly scheduled routes between the United States and foreign ports.
The Shipping Act of 1984 has three declared purposes: (1) to establish a nondiscriminatory regulatory process for the common carriage of goods in foreign commerce; (2) to provide an efficient and economic ocean transport system that is in harmony with international practices; and (3) to encourage the development of the U.S.-flag liner fleet. The scope of the act does not include maritime labor agreements, the carriage of goods on domestic waterways (cabotage), or maritime cargo preference programs.
A primary function of the act is to grant antitrust immunity to ocean common carrier conferences. Carriers formulate conferences or agreements to fix rates, pool revenues, apportion markets, limit the volume or character of cargo transported, and control competition in international ocean shipping. Shippers cannot challenge the formation of conference agreements, but the Federal Maritime Commission (FMC) can seek injunctive relief for any agreements that it considers to be substantially anticompetitive.
The conference's objective is to increase carrier revenue by regulating the price and availability of transportation services in a geographic region. Carriers can choose to operate independently and not join the conference. Independents, or non-conference carriers, are free to set their own published rates and services. The U.S.-outbound conferences presently control about 50 to 70 percent of all outbound vessel capacity. Conferences are required by the act to have open membership. Presently, most conferences are comprised mainly of foreign-flag carriers.
Tariff--In addition to antitrust provisions, the act establishes rules for filing ocean freight tariffs. Common carriers are required to file tariffs with the FMC and make them available for public inspection. The tariffs must contain all of the rates, rules, and services offered by each carrier and conference. Intermodal rates that include charges for the inland movement of cargo to and from ports are also filed in the tariff. In addition to the base rate, carriers frequently include bunker fuel, currency adjustment, terminal handling, and port congestion surcharges in the tariff. However, four groups of commodities are exempt from tariff filing requirements: bulk cargo, forest products, recycled metal scrap, and wastepaper. It is illegal for carriers to offer rates that are not published in the tariff.
Routes--Ocean liners operate on regularly scheduled routes. Publications such as the Pacific Shipper and Journal of Commerce's "Shipcards" section lists steamship companies, their routes, and departure and arrival dates.
Charters--In addition to regularly scheduled routes, chartered vessels can be contracted to haul full shiploads or full hulls of dry or liquid bulk cargoes such as grain, logs, fertilizer, and vegetable oil. Vessels can be chartered for individual trips or specified amounts of time. These charters are generally free from tariff filing requirements.
Rates--Conferences and independent carriers set freight rates based on the commodity being shipped, its value, weight, level of service provided, and destination. Sometimes several different rates are offered for the same commodity. For example, there may be one rate for shipping citrus and separate rates listed for oranges, grapefruit, etc. Separate rates may also be listed for intermodal shipments.
Freight rates are quoted in one of two ways: a basic rate plus ancillary charges, or an all-inclusive rate.
Basic Rate--The basic rate is based on the commodity being shipped, and volume (quantity, size, and weight) of the shipment. The rate is also dependent upon where the shipment originates, its destination point, and whether the shipment moves in a refrigerated or non-refrigerated container. Once the basic rate is established, ancillary charges are added to determine the total freight rate.
Ancillary Charges--Ancillary charges are often levied over and above the quoted freight rates. When applicable, these charges often include, but are not limited to:
Ancillary charges are stated in the conference or carrier rules tariff. Ancillary charges can be calculated as a percentage of the freight rate or a flat fee and can add up to more than 50 percent of the base freight rate.
All-Inclusive Rate--A single rate which incorporates all charges.
When obtaining a quote from a carrier, exporters or their freight forwarders should ask if any ancillary charges apply to the shipment. It is a good idea to always get quotes in writing.
Freight rates can be obtained directly from the steamship companies or conferences, freight forwarders, NVOCCs, or by visiting the FMC tariff library. Many steamship companies and conferences publish their own tariffs which can be obtained for a fee.
The Shipper and Exporter Assistance Program (SEA) of TMD, USDA, produces a monthly Ocean Freight Rate Bulletin which tracks high-value, containerized agricultural shipments to various Asian and European markets. The publication provides a side-by-side comparison of the rates and services provided for each commodity which was exported during the proceding month. Commodities tracked by the Bulletin include: apples, cherries, grapes, grapefruit, lemons, pears, oranges, almonds, raisins, pistachios, frozen beef, frozen poultry, and lettuce. To obtain a copy, contact SEA.
Containers--Typically, modern liner carriers operate containerships that are designed to transport cargo stowed in 20-, 40-, or 45-foot ocean-shipping containers. The use of containers reduces many risks associated with moving a product, such as adverse temperatures, handling damage, and theft. The most common container sizes are 20-foot equivalent units (TEU) and 40-foot equivalent units (FEU). The table at the end of this section lists some of the common ocean-container dimensions. Each carrier's equipment is slightly different in size, so check on the exact dimensions of the equipment you will use when placing a booking.
Independent Action--The mandatory right of independent action is one of the key provisions of the Shipping Act of 1984. It specifies that conferences must allow members to offer a lower rate or different type of service than specified in the conference tariff. The FMC must receive at least 10 days' notice prior to enactment of the independent action, but conference approval is not required. Any similarly situated shipper moving the same commodity can "me-too" any filed rate, including independent actions.
Independent action can serve as a competitive "relief valve" for the conferences to respond to changing market conditions. Independent action can increase rate-making flexibility and vent competitive pressures among conference members. Each conference member is allowed the latitude to act independently of conference-wide decisions. This may result in fewer carriers opting to leave conferences to pursue individual pricing strategies.
Service Contracts--The act also created a new form of ocean freight contractual agreement called a service contract. A service contract is an agreement between a shipper and carrier in which the shipper commits a specified volume of cargo over a fixed period of time in exchange for carrier rate concessions and specific service obligations. The essential terms of the contract must be filed with the FMC and made available for public inspection. These essential terms must be made available to any "similarly situated shipper" interested in obtaining a service contract for that commodity.
The mandatory right of independent action does not extend to service contracts. Conferences may prohibit their members from entering into these arrangements, but cannot prevent independent (nonconference) carriers from entering into service contracts. A number of conferences have chosen to prohibit individual service contracts, contending that they undermine their rate making processes.
Loyalty Contracts--A loyalty contract is formed when a shipper agrees to ship a minimum percentage of its cargo over a period of time in exchange for a lower rate. Although not commonly used, this could be a valuable tool when the shipper is attempting to open in a new market and is not certain of the volume to be shipped, but desires a lower rate.
Negotiating Skills--Obtaining a lower freight rate is not the only incentive for negotiating with a carrier or conference. Equally important to many shippers is the level of customer service and dependability. When entering into negotiations the shipper should:
Complaints--Ocean common carriers are prohibited from engaging "in any unfair or unjustly discriminatory practice in the manner of rates." However, the Shipping Act of 1984 does not provide the FMC or shippers with authority to challenge the "reasonableness" or "fairness" of carrier tariff rate increases. The Shipping Act of 1916 granted the FMC the authority to review the "reasonableness" of proposed rate increases and establish maximum freight charges. The 1984 act simply requires that the FMC ensure that both shippers and carriers adhere to the published tariff rates and rules. The FMC does investigate unfair or discriminatory rate practices by carriers. Complaints or problems regarding rates, services, or tariffs should be directed to the FMC.
The act prohibits a number of practices. Common carriers are prohibited from rebating, offering unreasonable preference to any shipper, employing "fighting ships" to drive off competitive carriers, or engaging in predatory practices. Shippers are prohibited from demanding rates not listed in the tariffs, or providing false information regarding the weight or contents of cargo shipments. One of the FMC's primary responsibilities is to investigate potential infractions of these and other provisions of the act, and assess penalties for violations. One of the most common infractions has been rebating.
Questions regarding the application of the Shipping Act of 1984, service contracts, tariffs, or potential violations of the act can be directed to the Federal Maritime Commission in Washington, DC at (202) 523-0300, or to the following FMC district offices:
New Orleans (504) 589-6662
Los Angeles (310) 514-4905
Miami (305)
536-4316
Seattle (206) 533-0221
Agricultural shippers can also contact the USDA-AMS Transportation and Marketing Division at (202) 690-1304 regarding questions or problems with ocean liner shipping.
Currently the act and the future status of the FMC are under review by Congress. Antitrust immunity, mandatory tariff filing, and service contracts are also being reconsidered by Congress. The outcome of this review could have a considerable impact on ocean shipping, and on the rates and services available to agricultural exporters.
Summary--Since 1987, the U.S. Customs Service has assessed a Harbor Maintenance Fee (HMF) on all imports and exports. This tax, .125 percent of the value of the shipment, is collected for the Harbor Maintenance Trust Fund, which is used for dredging the nation's deep draft harbors and navigation channels. On October 25, 1995, the Court of International Trade (CIT) declared the HMF unconstitutional. This decision is being appealed, likely to the Supreme Court, but until the appeals process is complete the Federal Government will continue to collect the tax.
Background--The HMF on imports is routinely collected by the U.S. Customs Service at the same time other general import duties are collected. Because Customs has not had a uniform documentation process for the pre-clearance and control of exports (this is about to change as Customs implements the Automated Export System), the fee has been collected sporadically, namely when the exporter has chosen to pay. While some exporters have not been paying the HMF, most have. For many, this amounts to a considerable amount of money. Currently, the Trust Fund runs an annual surplus of about $300 million.
These monies are appropriated by Congress to the Corps of Engineers to conduct dredging and maintenance of the ports. The Harbor Maintenance Trust Fund revenues have increased much faster than expenditures as a result of increased trade, stricter enforcement of the tax, fairly consistent Corps harbor maintenance appropriations, and an increased HMF rate (rate was .04 percent of cargo value until 1990). The surplus in the trust fund grew from $120.6 million at the end of FY 1992, to $865 million at the end of FY 1996. The Administration projects that the trust fund surplus will grow to $1.112 billion by the end of 1997.
The "Export Clause" of the U.S. Constitution specifically prohibits taxes or duties on exports: "No Tax or Duty shall be laid on Articles exported from any State." (Article 1, Section 9, Clause 5.) Since the Harbor Maintenance Fee statue exclusively refers to a "tax," never to a "fee," the courts are being asked to declare the HMF unconstitutional and to stop its collection.
On October 25, 1995, the Court of International Trade (CIT) declared the HMF unconstitutional, finding that the HMF's primary purpose was not to regulate commerce or reimburse the U.S. Government for any benefits received, but primarily to raise revenue. As a result, CIT found HMF in violation of the Export Clause, and therefore unconstitutional. This decision will be appealed, and could be confirmed, reversed, or significantly changed during the appeals process.
It is important to note that the CIT assumed jurisdiction under its general residue power (28 U.S.C. 1581(I)), which has a 2-year statute of limitation. This is important because it would limit relief to actions within the last 2 years. However, a concurring opinion (which reflects a view not accepted by the Court's majority) argued that because the law was unconstitutional from its inception, all HMF assessments since 1987 should be refunded. The refund policy will also be determined by the higher courts decision during the appeals process. Thus, until a final issue is ordered, it will not be known as to how far back one might be able to seek refunds.
Seeking Refunds--On May 7, 1996, the CIT denied "class action" status in the HMF litigation. A class action would have allowed all exporters to reap benefits of a favorable decision, without requiring each exporter to file a summons in the Court. While the CIT has already ruled that filing a protest with Customs is insufficient, the Court's recent ruling means that refunds will have to be pursued individually, by each exporter.
A final verdict is not expected until 1997. The only way that an exporter can ensure their right to a refund of HMF paid before that decision is to participate in the litigation by filing a claim directly with the Court. This filing fee is about $120 plus the cost of retaining legal representation, who generally works on a contingency fee arrangement. Also, administrative protests must be filed with the Customs Service within 90 days of each quarterly payment and detailed records of past HMF payments maintained.
Currently, about 2,500 exporters have filed for refunds.
For agricultural products with relatively short shelf lives, such as fresh asparagus, strawberries, and cherries, time in transit is the critical factor in determining which transportation method is used. Air shipment of these products is often used due to the fast in-transit time. However, the cost for moving product by air tends to be higher than the cost of ocean transportation.
Air cargo moves in one of three ways: in combination passenger/cargo flights, all cargo flights, or charters. Both passenger/cargo and all cargo flights have scheduled flight times and destinations.
Shippers also have the option of chartering a plane to carry their cargo. Charters are essentially aircraft for hire, with no pre-set schedules and destinations. Sometimes a freight forwarder or group of freight forwarders will charter planes offering space to their shippers at a special rate. This is known as a split charter, or forwarder charter, and is authorized in many markets.
International air carriers have antitrust immunity to establish "fixed" rates. A group of air carriers that have jointly agreed on a fixed rate are known as International Air Transport Association (IATA) conferences. These fixed tariffs represent the maximum amount that airlines can charge for air cargo. Airlines are free to charge lower rates than the agreed-upon maximum.
Tariff--Tariffs define the rates, rules, and regulations associated with air cargo on a given carrier. Tariffs define the "product" offered by the airlines. For example, does the price include airport-to-airport delivery or door-to-door delivery? Does it include customs clearance? What is the carrier's liability? The rules section of the tariff also specifies the shipper's responsibilities such as payment method, restrictions, and packing and marking requirements. Check with your freight forwarder or airline to obtain tariff information.
Schedules--Air carriers operate regularly scheduled flights. Schedule information can be obtained directly from the air carriers, freight forwarder, and publications such as the Official Airline Guides Air Cargo Guide (OAG).
Booking Space with the Airlines--When booking space with an airline, the shipper or shipper's freight forwarder needs to supply the following information:
Also, any special considerations must be mentioned during the
booking. Special considerations include temperature and other requirements for
perishables, live animals, restricted cargo, etc.
A cargo booking with an airline means that your cargo will move from the airport of departure to the airport of destination. It does not guarantee that this will happen on a specific flight, following an identified route, in a specified time period. Airlines do not guarantee a fixed arrival time for cargo and can change transportation arrangements at anytime without notice.
Rates--Freight rates vary depending on the commodity being shipped, its value, level of service provided, destination, weight, and seasonal variations in demand for cargo space.
The weight of a shipment is calculated on either the actual weight (in kilograms), the dimensional weight (length x width x height), or the positional weight, whichever is greater.
Air freight forwarders and air carriers are the best sources for obtaining freight rates. There are also companies that specialize in publishing air cargo tariffs. These publishing companies charge a fee for their services.
Containers--When sending multiple boxes or pieces of cargo to one destination, cargo is loaded into an aircraft container or assembled and secured on an aircraft pallet. Both the aircraft container and pallet are called a unit load device (ULD). ULDs enable cargo to be assembled into a standard sized unit for rapid loading and unloading. ULDs also help to cut down on split shipments and lost cargo. Containers of different size and dimensions are available for shipper use from the airlines. A table at the end of this section provides a description of standard ULDs.
Negotiations--The air cargo industry is intensely competitive and air carriers are sometimes willing to negotiate with shippers to get their business. The key to getting the best rate and/or level of service is to shop around. With a knowledge of the level of service and rates being offered, many shippers can enter into private negotiations with carriers.
Hazardous Materials--The U.S. Code of Federal Regulations, Title 49, contains explicit regulations that list and define restricted articles, noting which may or may not be carried, quantities allowed, and proper shipper certification, packing, marking, labeling, and handling. Dry ice transforms from a solid to gaseous carbon dioxide, displacing oxygen in enclosed spaces. When shipped by air, dry ice is considered a dangerous commodity and regulated by the U.S. Department of Transportation.
1. The technical information on the Harbor Maintenance Fee was provided by the Agricultural Ocean Transportation Coalition (AgOTC).