Global Shipping Crisis And The Role Customs Brokers Play
The global shipping crisis has become everyone's problem as a direct result of international issues, including the ongoing COVID-19 pandemic, climate change, war, more restricted policies, and unstable market demand.
With industries struggling, many importers have increasing concerns about the changing regulations, unexpected demurrage and detention charges, container delays, and the increased freight rates that have exhausted budgets on all ends.
Is there any hope for improvement from delays at the port of origin to port congestion, block-stow holds, customs exams, shortage of container chassis, and shortages in labor and warehouse space throughout the supply chain?
Let's delve into the issues and answer the questions on the minds of many in the global trade industry affected by these variables daily. Today's post will highlight the impacts affecting trade, steps in the ocean shipping release process, hidden costs, and the roles of parties involved in shipping your cargo across global borders.
The Current State Of Trade
WTO economists state that "total merchandise trade was up 17% year-on-year in the second quarter of 2022, compared to 22% year-on-year in the fourth quarter of 2021. Trade in the first half of 2022 was also up 32% compared to 2019. The main takeaway is that because of changes in prices, and merchandise trade values are growing at double-digit rates even as trade growth in volume terms remains in the low single digits".
Although we can make predictions, some circumstances are out of our control, and therefore we cannot fully prepare for them. In countries like Canada, the standard of living depends on the advancement in the international trade industry, which relies heavily on the effective and efficient operations of supply chains. The pandemic, which is still considered a threat, proved this, even after two years of being prevalent.
Although recovering, Steamship line availability has sometimes been unyielding, driving up demand and cost. Containers are in short supply, drayage carriers are hard to find, and as a result, terminals have limited capacity. With these ever-changing complications, it is essential to your bottom line to ensure that you understand the ocean release process.
Ocean Shipping Process
According to the International Chamber of Shipping, the industry is responsible for transporting around 90% of the world's trade. So, let's go through the ocean shipping process to understand the terminology and steps involved in this complex operation of transporting goods.
Understanding Incoterms® would help you answer the questions of "Who is filing the export documents?" or "Who is paying the carrier?" in sales transactions.
Shipping across the sea consists of 4 crucial Incoterms®:
- Free Alongside Ship (FAS): The seller must place the goods alongside the ship at the named port.
- Free On Board (FOB): The seller must load the goods on board the ship nominated by the buyer, with cost and risk divided at the ship's rail. The seller must clear the goods for export.
- Cost and Freight (CFR): The seller must pay the freight fees to bring the goods to the destination port. However, the risk is transferred to the buyer once the goods have crossed the ship's rail.
- Cost, Insurance, and Freight (CIF): The same as CFR except that the seller must, in addition, procure and pay for insurance for the buyer.
Steamship Line and Terminal Costs
Importing goods into Canada via ocean freight container will require a booking space for your container on a steamship line. Importers with full container loads (FCL) can book slots directly with the steamship line of their choosing or can opt to hire a Freight Forwarder to make bookings on their behalf.
Areas Of Hidden Costs That Importers Should Consider
The shipping crisis has negatively affected costs, placing a tremendous burden on the ocean freight industry, the most cost-effective way of moving larger goods across the globe. Here is a breakdown of the hidden costs importers should be aware of:
Terminal Fees and Port Storage:
The steamship line charges are calculated based on their services of carrying the container from the loading port to the discharge port. Additional charges for the terminal work, including loading and unloading containers, storage, and empty container returns, will also be passed on to the importer.
Drayage refers to fees for transporting goods over short distances with trucks. Moving the container from the port of arrival to the delivery location is an example of drayage. Additionally, the trucking company will need to deliver the empty container back to the steamship line. The importer, their Customs Broker, or Freight Manager should handle bookings for drayage. The trucking company will utilize a trailer chassis to load the container.
Detention, Demurrage, and Trailer Chassis Rental:
The steamship line will rent out containers to carriers and freight forwarders. 'Free days’ allow importers to use the containers for a pre-specified amount of time without incurring additional charges. Using containers outside that time frame will result in demurrage for containers still at the port and detention until the empty container gets returned to the steamship line. Additional fees will incur if the containers are stowed away on the trucking company's chassis trailer.
The Canada Border Services Agency (CBSA) can refer your shipment for examination, which would involve extra costs payable by the importer of record for further inspection.
Ocean Release Documents
One of the most commonly misunderstood aspects of the ocean release is documentation. It is also the most important as it serves as a set of instructions to all parties involved. Many first-time importers erroneously believe that the Customs Broker or the Freight Manager will "take care of everything."
To ensure a smooth process, the steamship line and the terminal ports use the instructions within the documentation to identify who they will need to communicate with and the parties responsible for paying the charges. If the documentation is inaccurate, it will have a ripple effect on the processing and completion of your shipment process.
The documentation consists of the following:
- Bill Of Lading (BOL): Serves as the contract of transport, a delivery receipt, and can be used as a transfer of title or ownership. The CBSA needs to know the contents of your ocean container, which the bill of lading will help communicate. The BOL must be surrendered to the carrier or Freight Manager at the destination (Canada) to receive the steamship line Arrival Notice necessary to complete the Customs release.
- First Notify Party: The steamship line needs to understand who to contact with updates on container arrival and who to charge any steamship line fees, such as demurrage/detention. The Notify Party should be the importer or the freight manager.
- Secondary Notify Party: This party will be notified of arrival but not directly invoiced for extra steamship line charges. The Secondary Notify Party should be the Customs Broker.
- Arrival Notice: Provided by the terminal to the First and Secondary Notify Parties listed on the BOL. The Customs Broker requires the Arrival Notice to prepare the shipment for import into Canada. The Arrival Notice shows the Cargo Control Number (CCN), the port of arrival, and the sublocation code for Customs clearance.
An importer's Customs Broker and Freight Manager are as involved as the documentation dictates.
Therefore it’s imperative to ensure proper instructions are on the Bill of Lading (BOL) and Arrival Notice. Everything outside of what the documentation states will fall squarely on the shoulders of the importer.
Customs brokers, in basic terms, are the middlemen between importers and the government. However, ultimately, importers are legally liable if anything goes wrong while transporting goods and if Customs audits those shipments years after.
Things Customs Brokers Want You To Know
Working with Customs Brokers that can clearly explain what is required from you, as well as Freight Forwarders that keep a close watch on the movement of your cargo, delivery times, and delays will set you up for ocean shipping success.
Customs brokers will assist you in leveraging information in today’s ever-changing marketplace and transform that information into trade intelligence that would provide you with the advantage you need to advance in today’s competitive market.
With the market in disarray, very little can be done to mitigate the effects of delays, rising prices, or shortages. Maintaining good communication with all parties in your importing process and working with your service providers will help alleviate the effects caused by these often unpredictable global issues.