Shipping – Definition, Walkthrough & Examples
More than 90% of internationally traded goods are transported by commercial cargo ships. Although road, rail, and air transportation seem to be alternative methods, it is essential for landlocked countries and multimodal transportation. Maritime transport has a very important place in global trade due to both high capacity transportation and low transportation costs.
Shipping is the physical moving of goods from one point to another, such as moving merchandise from the warehouse to the customer. The shipping process follows the manufacture and the packing of goods and will be controlled by a shipping or logistics company.
As the most critical link of the supply chain, the shipping process includes transporting the goods from the seller’s address to the buyer’s address or a point requested by the buyer, by a shipping company, after producing and packaging the goods.
If we are talking about international shipping, the processes become much more complex. It is necessary to get service from a logistics company that will carry out international shipments. At both ends of the shipping process, customs procedures will occur at the ports or border gates of two different countries. A contract regulating trade between the exporter and the ImporterImporter in two countries with varying laws of trade, payment methods that determine the risk in payment processes, and many more details are in question.
What Are The Main Types Of Shipping Methods?
1. Sea Freight
Large-scale transportation activities have been provided by sea throughout history. Sea transport is known as the highest volume, most economical, and safest mode of transport. The fact that 90% of the world’s commercial goods transport is carried by sea shows a huge capacity.
2. Road Transport
Goods transportation by road is frequently preferred as a transportation method that provides door-to-door, non-stop delivery between countries that have land connections project relatively close. However, as the distance gets longer, it is a more costly mode of transportation compared to sea and rail transportation. Road transport is a type of transport that supports other types of transport due to the internal transport service required between the addresses of exporter and importer companies and the port, airport, and train station.
3. Air Freight
Today, the main area of air transport is express courier shipments due to small-sized parcels or document transfers. The increase in B2C and B2B trade, both within the country and internationally, has increased the demand for project transport. Airfreight is preferred for urgent shipments and shipments of high-value goods when it comes to large-scale commercial shipments. Air transport is the fastest but most costly mode of transport.
4. Railway Transport
Railway transportation is the most economical shipping method after sea transportation, but due to high initial investment and maintenance costs, it has a distribution network that does not become widespread unless government investments support it. Today, the railway project, which is launched by China as the new silk road and connects China to Europe via Central Asia, is shown as the largest logistics investment in history. Rail transport is an economical and safe mode of transport, especially over long distances.
Main Actors in International Transport
a) Couriers: They specialize in the fast and safe delivery of small goods and packages. They provide services for domestic or international shipments.
b) Loaders (Hauliers): Companies that take the cargo from the manufacturer’s or seller’s premises and provide inland transport services to the port, airport, train station, or the final road vehicle to be loaded.
c) Road Transporters: Road transport companies provide combined transport services between 2 points with a road connection or by means of links such as Ro-Ro. Road transport companies are divided into two different categories according to whether the trucks are self-owned: asset and non-asset-based transportation service.
d) Airway Shipment Companies: These carriers, which have the authority to carry air cargo with the IATA certificate, carry out local and international cargo transportation within the framework of the general rules of airline transportation.
e) Freight forwarders: Freight forwarders – consolidate shipments and identify and implement the most appropriate means and methods of transporting cargo on behalf of their customers. They are customer-oriented. They provide customer-specific service on operation follow-up.
f) Shipowners: Shipowners own large-capacity container and dry cargo vessels used in international transportation. Freight forwarder companies generally market ship capacities of shipowners. Exporters and importers can work directly with shipowners when their annual shipment capacity is established.
Why Delivery Times Matter “What’s the Deadline”
Shipment refers to the transportation process of the products subject to commercial activity, and the cost of this process is called the freight cost. The part of the freight cost, which is reflected in the unit product price, affects the product prices, so the transportation process and logistics costs should be managed very carefully. In international trade, incoterms, i.e., delivery terms, indicate which company is responsible for the shipment, under which conditions in an international sales agreement.
Apart from the cost and pricing effect, the transportation process, the transportation time of a good from point A to point B is conditional; if an agreement has been made that the shipment will take place within a specific time, this period is called deadline. Today, many products are shipped with certain deadlines due to the nature of the product or customer expectations.
For example, the transportation process of food products such as fruits and vegetables must be carried out in the fastest way, the products are kept fresh, and their shelf life is not reduced. The transportation process of drugs, vaccines, and medical supplies transported by the cold air chain should be carried out in the shortest possible time due to both the urgency of the products and the costs of the transportation with the cold air chain. Some products are ordered for seasonal, seasonal, or special occasions. It is also important that there is no disruption in the delivery times of such products.
For example, let’s assume that ready-made garments manufactured in China that need to be put on store shelves in the US during the summer are loaded from the port of Shanghai in China at the beginning of April and are planned to be delivered to the US in an average of 30 days. Suppose products arrive at the US distributor’s warehouses at the end of May rather than at the beginning of May due to extended shipping time or customs clearance. In that case, the beginning of the season is missed, including the in-store distribution process.
Consider that a truck loaded with fruit from Spain and planned to reach Germany in 3 days arrives in Germany in 1 week due to reasons such as malfunction or roadwork. At the end of 1 week, even if the fruits are not spoiled, the shelf life period that will pass while waiting for customers in supermarkets is shortened.
How to determine the type of overseas shipment?
To determine which means of transport a commercial product will be transported. First of all, it should be determined how the products will be packaged and which of the packaging methods such as boxes, pallets, parcels will be appropriate. When the total weight of the products and the dimensions of the boxes become clear, you can search for freight costs. At the end of this process, it becomes clear which means of transport will be suitable.
For example, the cost of transporting high volume and heavy products by plane will be high. Sometimes, even if you accept the cost, it may not be possible to transport your cargo by airways due to the product dimensions. Products with extra-large dimensions may not fit in the container. In such cases, it may be required to be transported by a flat container (open container) and open box trucks. For example, wind panels longer than 3 meters are not accepted by cargo aircraft due to the length limit, while a 13-meter wind panel will not fit in a container. In such cases, special equipment can be transported by incurring higher transportation costs.
How fast does the product need to reach its destination? What kind of deadline does the importing company demand? If your time is limited, your shipping options will be limited. For example, air shipment is the only option for an export cargo that needs to reach the USA within one week from China.
Delivery Terms “Incoterm” Overview
Who will carry out the logistics processes, who will pay the costs such as freight, insurance costs, and customs costs, which incoterms will be selected, is determined at the beginning of the trade. For example, an importer may ask the exporter to provide prices with different incoterms such as ex-works, FOB, CIF, DDP.
Both parties can inquire about these freight options from different carriers and determine which type of loading would be more appropriate in terms of unit cost. Firms that export regularly and in large numbers are more likely to find freight at affordable prices. The incoterms, which were last updated in 2020, including 11 different delivery terms:
(EXworks, FCA, FOB, FAS, CIF, CPT, CFR, CIP, DAP, DPU, DDP)
Four different incoterms with different features are given below as an example:
Exworks: The exporter notifies the importer company when the goods are ready for shipment. The ImporterImporter makes an agreement with an international transport company and receives the goods from the exporter’s factory. In these incoterms, domestic shipping costs, international shipping, insurance, and customs are borne by the ImporterImporter.
FOB: The only difference from Exworks is that the exporter organizes the inland transport, transports the products or the container in which the products are loaded to the port notified by the ImporterImporter, and performs the export customs clearance. All other costs belong to the ImporterImporter.
CIF: The exporter covers the costs of inland transportation, customs clearance, insurance, and freight. When the ship carrying the cargo or the container containing the cargo reaches the port in the Importer’sImporter’s country, the responsibility of the exporter ends, the importer company carries out the import customs procedures and the internal transportation in the Importer’sImporter’s country.
DDP: These incoterms are the opposite of ex-works. When making an offer to the ImporterImporter, the exporter company makes an offer to pay all costs to be delivered to the address determined by the ImporterImporter in the Importer’sImporter’s country. In other words, the exporter is obliged to deliver the products to the ImporterImporter by paying the internal transportation on both sides, customs procedures on both sides, freight, and all taxes that will occur in the Importer’sImporter’s country.
Combined transportation is the uninterrupted and safe delivery of the shipment between two points by using different transportation vehicles in an integrated manner. Uninterrupted is because the load is not unloaded from the vehicle at some point, but only by changing the transport vehicle. The fact that it is safe is that the risk of loss and damage to the products is reduced, as there is no download and installation process.
For example, automobile spare parts produced at the Ford factory in Cologne, Germany, are loaded into a 40″ container. The container is transported on a truck to the port of Hamburg. In the port of Hamburg, the container loaded on the ABC ship to New York arrives at the port of New York after 18 days. It is loaded on a truck and delivered to the Ford factory in Cleveland. The transportation we are talking about in this example is multimodal transportation. The goods loaded in the container were first transported from Cologne to the port in Hamburg city by a truck, then crossed the ocean by ship and finally loaded on a truck from New York port to Clevland.
It may not be possible for international shipments to ship with a single means of transport for different reasons. For example, it is not possible to ship by truck between two cities that do not have a road connection. For goods to be shipped from a landlocked city to an overseas country, multimodal transportation in the form of truck+ship or truck+plane is inevitable. Sometimes the Importer’sImporter’s deadline problem causes multimodal transportation. For example, while it is possible to transport by road, that is, by truck, between Turkey and France, a multimodal transportation in the form of RoRo ship + truck can be preferred between Turkey and Italy by using the RoRo line, due to the advantage of term or freight.
Combined Transport Models
a) Unimodal transport
The transport of goods by one or more carriers using a single mode of transport is called unimodal transport. The following are examples of unimodal transport.
- Shipment by truck between the USA and Mexico
- Shipment by plane between UK and China
- Shipment from the Netherlands to Australia
- Shipment by rail between Germany and Russia
b) Intermodal Transport
It is the mode of transportation that takes place by transferring the container with more than one transportation vehicle without removing the cargo from the container it is in. The container is the most widely used transport unit. Today, cargo ships, trucks, and trains carry 20″, 40″ and 45″ containers as standard cargoes. A container is loaded from the exporter’s facilities, transported by road to a port, loaded to a ship at the port, and finally transported by truck from the ship to the destination or Roro transportation.
The following are examples of intermodal transport:
- Shipment between the USA and China with a “truck-ship-truck” connection
- Shipment by “truck-airplane-truck” between Netherlands and India
- Making shipments between Germany and Turkey by “truck-train-ship-truck.”
c) Multimodal Transport
Multimodal transport is similar in content to intermodal transportation, with the only difference that the customer organizes the entire shipment by making a single contract with only one logistics provider. The shipping company that takes the main transportation business is responsible for the whole process, even if it uses sub-suppliers in the transportation process.
For example, consider that a Chinese export firm receives CIP incoterms offer for a 40″ container to be exported to the United States. The offer includes inland shipping between the factory and port in China, sea freight from China to the US, and shipping in the US. Inland transport from the port to the Importer’sImporter’s facilities is included. In this type of transport contract, the transport companies that will carry out the inland transport in China and the USA may be different, but the exporter’s addressee is a single logistics company. The maritime transport company will carry out the inland transport processes with various suppliers, but the operation is under their control takes place.
The Future of Shipping: Autonomous Ships
Think of an autonomous smart ship as a giant smartphone. Smart ships are being built with the ability to communicate with other ships, ports, and partners. Virtual reality, drones, and self-driving ships: All these technologies continue on a common denominator to construct autonomous ships.
The world’s first net-zero emissions electric (battery-operated) autonomous container ship, Yara Birkeland, was launched in November 2020. Work continues for the autonomous operation of this ship. Electric-powered and autonomous ships will change the shipping industry’s future with both environmentally friendly and low operating costs. More than 1 billion tons of CO2 is emitted annually due to maritime transport on a global scale. Maritime transport accounts for about 2%-3% of the world’s emissions. This figure is expected to be halved with electric-powered ships.
Autonomous ships, on the other hand, will cause radical changes in the shipping industry. First of all, these ships will be managed remotely without crew, and there will be no one on board, including maintenance and repair personnel. Instead, captains will remotely manage ships sailing around the world in operation centers located in specific ports. In certain ports, emergency response teams will be available to intervene in autonomous ships and reach ships underway with drones or helicopters carrying technicians when necessary. While the employment loss that this situation will create is a problem, the salary expenses for the companies will decrease, and the accidents caused by human errors will be prevented. According to statistics, seafarers’ salaries and personnel expenses make up 50% of ship operating costs. Approximately 80% of ship insurance claims in a year are due to human error.
Autonomous ships will probably not have a piracy-friendly deck layout or manual management of the ship, or forced entry into the ship. This will prevent maritime piracy. However, since autonomous control will be provided via an online network or a satellite link, counter-hacking measures will be required.
The World’s Largest Container Transport Ships
With a length of 400 meters and a carrying capacity of more than 20.000 TEUs (20,000 TEU means 20.000 pcs 20″ containers), the new generation of container ships now approaches the dimensions of crude oil tankers and bulk carriers.
It’s taller than the Empire State Building and wider than an American football field. The maximum load capacity of these ships represents the volume of 235 Olympic pools.
- OOCL Hong Kong Specs – Length: 399.87 meters 21.413 TEU payload
- CMA CGM Antoine de Saint Exupery – Length: 399 meters 20.776 TEU payload
- Madrid Maersk – Length: 399 meters 20.150 TEU payload
- MOL Triumph – Length: 400 meters 20.000 TEU payload
- MSC OSCAR – Length: 395.4 meters 20.000 TEU payload
- CSCL Globe- MV CSCL – Length: 400 meters 19.100 TEU carrying capacity
- Barzan (Hapag-Lloyd – UASC) – Length: 400 meters 18.800 TEU payload
- Magleby Maersk – Length: 399 meters 18.270 TEU payload
- MSC New York – Length: 399 meters 18.270 TEU payload
- Madison Maersk – Length: 400 meters 18.270 TEU payload
CMA CGM Benjamin Franklin – Length: 399.2 meters 18.270 TEU payload