Liner Trades

Question 1

What is a liner?

Answer 1

• A liner is a ship that goes from a port or range of ports to another port/range of ports on an advertised schedule – in the main liner trades this is based on specific days of the week. They are common carriers, meaning that anyone who can pay (+ agree to T&Cs) can ship on them
• Usually carries manufactured goods for multiple shippers in small consignments; this is called general cargo
• Individual consignments are not negotiated separately – the shippers must comply to the line’s standard T&Cs as set out in the BoL – the BoL here serves as evidence of contract (amongst other things)
• Besides the BoL there is little in the way of formal contracts, almost like a bus ticket
• The freight paid by the shipper for liner transportation is called liner terms – these include the full cost of loading/discharging at quay but doesn’t include terminal handling charges (moving the container into and out of the terminal)
• No specific time limits, demurrage or dispatch, besides demurrage payable if a container is delayed beyond a stipulated time

Question 2

Describe types of containers

Answer 2

Containers don’t just have to be boxes – anything that can be fitted with the 8 corner castings can be carried as a container. As well as the standard air/watertight box there exists ventilated containers, useful for products such as living coffee beans which require a throughflow of air. These vents can be closed. There are also insulated porthole containers
refrigerated containers
open-top containers for cargo that needs to be at a constant temperature; and insulated porthole containers
refrigerated containers
open-top containers (known as reefers) which draw a supply of electricity from the ship via reefer plugs. Cargo that is too heavy to be handled via forklift can be handled by crane into insulated porthole containers
refrigerated containers
open-top containers; these can then be covered with tarpaulin (soft top) or steel roof (hard top). Flat racks
platformscan accommodate awkward shapes/sizes and simple Flat racks
platforms can also be used (usually for items too large to load into a container)
Dry bulk containers
tank containers have holes in the top to pour in cargo (e.g. malt), andDry bulk containers
tank containers have been adapted to carry specialised liquids, e.g. chems/foodstuffs

Question 3

What are the benefits of containerisation?

Answer 3

• Minimises port time
• Automated load/discharge
• Intermodalism
• Cargo can’t damage other shipments

Question 4

What are freight forwarders and NVOCs?

Answer 4

Freight forwarders take and aggregate LCLs themselves, charging a premium for the convenience but less than the minimum costs liners charged. This lead to the development of NVOCs – non vessel operating carriers (in the US they must be called NVOCCs, including the word ‘common,’ indicating they offer their services publicly)
Today NVOCs specialise in house-to-house transit globally – the biggest handle more FCL than major shipping lines. They buy liner space (aka ‘slots’) in bulk and re-market them to supply chain managers. Generally their FCL pricing will be less than the liners’ themselves – some NVOCs have stopped offering LCLs entirely

Question 5

Describe the security risks associated with containers

Answer 5

Containers and the efficiencies they bring are integral to global commerce, however there are some associated issues; containers are the transport of choice for smuggling and tax evasion, including avoiding duties on cigarettes and alcohol; and smuggling endangered species, weapons and illegal immigrants. These issues alongside the fear of terrorists transporting WMD (weapons of mass destruction) have prompted the US to insist on much more vigorous safety checks; some countries now allow US officials to inspect their containers in port before being loaded
In 2007, the US passed a law requiring all containers be scanned for WMD before being loaded if heading to the US – this was supposed to come into effect by 2012, however has not yet been implemented as the scanning technology is still being developed, and many ports do not have the space/means to accommodate

Question 6

What were liner conferences and how did they operate?

Answer 6

Liner conferences are price fixing cartels; they operated as almost complete monopolies, which they reenforced by giving loyal shippers rebates and cancelling payments/penalising shippers who used non-conference ships

Question 7

What measures were implemented to prevent liner conference price fixing?

Answer 7

In 1982, a UN code was implemented that implemented a code of conduct for liner conferences; this was designed to ensure that shipping lines of developing countries would be able to secure a fair share of the cargo market, however by this time containerisation had progressed to such an extent that conferences no longer enjoyed a dominance in any single trade, removing the need for the code
Conferences still exist, and although they no longer carry their former power, they still aim to bring order to liner routes. They are tightly regulated and closely monitored by the federal maritime commission in the US and European commission’s directorate for competition
Tariffs are still produced and updated, however in most trades a measure of negotiation in freight rates is normal – usually on a per-box basis irrespective of cargo

Question 8

What are liner consortium agreements?

Answer 8

Lines have formed joint services, where each line provides an agreed number of ships and in return get allocated a % of slots in each sailing, regardless of who actually owns the boat. This is because a single line generally can’t afford enough ships to operate the same route on the same day on a weekly basis (as is standard)
In some cases, consortium members may still get slots allocated without providing a vessel just for being a member
Consortia emerge and disband cyclically with the strength of liner trade + the lines involved

Question 9

How did liner consortia come about?

Answer 9

Consortia were originally developed by groups of lines operating along similar routes, e.g. Europe to FE. Lines within such a group may join with another set of partners operating in another part of the world, e.g. Europe to US, leading to the formation of alliances where groups of lines come together from all 3 of the world’s major cargo trade routes; Europe > FE, Europe > US, and FE > USA to provide a global integral service

Question 10

Discuss the movement towards liner consolidation

Answer 10

Since the 2008 crisis, liner services have been under increased financial pressure whilst being economically incentivised to provide ever-larger vessels to reduce costs and reduce environmental impact – with the likelihood of much further consolidation within the industry via mergers/acquisitions remaining low, alliances/consortia are the only way that lines can continue to achieve greater economies of scale

Question 11

Describe a modern major liner operator

Answer 11

Today’s liner operator is likely to contain the following elements;
* Membership of a consortium, alliance and possibly conference;
* Fixed-day sailings;
* A network of its own offices and/or agents supplying service to customers with intense publicity/sales activity;
* Engagement in major E/W trade(s) with subsidiary trades N/S (either direct via themselves or a feeder service)
* Inland and distribution operations by rail, road or barge to provide full door-to-door service

Question 12

What’s the difference between a liner and a break bulk BOL?

Answer 12

• In liners, the reverse of a BOL covers the T&Cs of carriage (usually this is Hague/Hague-Visby or Hamburg)
• Usually they are combined BOLs, meaning they cover all forms of transport, not just the ship. The carrier’s responsibility covers all transport regardless of mode, including those carried out by contractors
• Only liner BoLs act as proof of contract legally, CP BoLs will state it’s ‘in accordance with the charter party and all terms and conditions therein.’ This means that courts can settle liner disputes using only the BoL, whereas in charter issues the full CP will need to be produced
• Any party that buys goods covered by a liner BoL will be able to see immediately what the terms of the contract are, however when charter BoLs are exchanged the charter party rarely carries over. The new owner may not be aware of the full terms of the original CP. The law recognises this and may extend protection to the owner of a BoL which didn’t necessarily apply to the last owner because of a CP clause

Question 13

Besides BOLs, what documents are involved in shipping on a liner?

Answer 13

• Waybills
• Booking notes
• Shipping notes
• Mate’s receipts
• Manifests
• Packing lists
• Hazardous lists
• Indemnity letters

Question 14

What is included in a combined transport BoL?

Answer 14

• Name of consignor and shipper
• Where the carrier first received custody of the cargo
• Actual port of loading
• Where it will be discharged
• Final destination
• Description of cargo
• Terms of carry on the back of the BL

Question 15

Describe a combined BOL’s role as receipt for cargo

Answer 15

• A combined transport BoL’s role as receipt is twofold; it confirms the qty and condition of goods when received and means the consignee can demand the same qty/condition when they receive the goods
• The master of the ship will sign to confirm ‘received by the carrier from the shipper in apparent good order and condition’
• If a FCL is stuffed by the shipper, the cargo description with be amended with ‘is said to include,’ exonerating the ship of responsibility if not as described (provided the exterior of the container is still in good shape)

Question 16

Describe a combined BOL’s role as evidence of contract

Answer 16

• T&Cs of carriage are on the back of BoL
• The BL isn’t actually a contract – full contracts are not usually written for liner cargo, and verbal agreement is enough
• When contracts are needed, they usually take the form of booking notes

Question 17

How does a combined transport BOL function as document of titile?

Answer 17

• Title = ‘the right to ownership of property with or without possession’ (e.g. it’s yours regardless of who actually has it)
• This means whoever has legal hold of the BL may claim the cargo – if the BL changes hands lawfully, ownership transfers at that exact moment
• This means that buyers can resell cargo multiple times before it’s actually received providing the BL is exchanged each time – whoever the ultimate receiver is just needs to provide the BL to the line to claim ownership of the goods
• The seller can withhold the BL until payment is received, meaning that it can be security for payment

Question 18

How are combined BOLs used as security for LCs?

Answer 18

• Once a purchase has been agreed, the buyer will instruct their bank to arrange for a letter of credit to be available at the seller’s bank. When the cargo is shipped, the line/line’s agent will give a signed shipped BL to the shipper. The shipper then takes this to the bank that’s holding the LC (plus any other relevant docs). Once the bank is satisfied that the docs align with the LC (condition, qty etc), the shipper can collect payment of the goods
• The seller’s bank now holds the BL (as security of payment) and passes it to the buyer’s bank. The buyer’s bank can hold this BL as security until the buyer has paid
• Once the buyer has paid they can either use the BL to claim the goods or resell the cargo
• Banks only hold BLs as security and don’t want/need the legal obligations that go along with being the cosignee; the cosignee on the BL will be marked as ‘order;’ once the shipper has endorsed this, it means the BL is ‘open.’
• The name of the buyer/their representative will be entered into a ‘notify’ box so the line/line’s agent knows who need to contact in the event of any issues
• If the buyer doesn’t have the money, the bank will become cosignee and will obtain the best price possible for the goods (this is rare)

Question 19

What is a sea waybill and when are they issued?

Answer 19

• Cargo ships are very fast and only spend hours in port at a time, meaning cargo can arrive before its documentation – especially if banking systems are involved due to increased scrutiny for fraud
• To avoid this, the buyer and seller can agree to non-LC payment – if the buyer has no intention of reselling the cargo whilst on passage then a BL is not necessary and a sea waybill can be issued instead
• A sea waybill is similar to a BL in all respects however it’s non-negotiable once completed, meaning ownership cannot change until the original buyer takes possession of the goods
• To take possession, instead of providing a BL, the buyer just identifies themselves to the liner with proper evidence

Question 20

Describe the role of technology for the transfer of documents in modern liner trade

Answer 20

Container lines use computers to handle their BLs, waybills, freight invoices, manifests etc, meaning they can be exchanged electronically between the line’s offices and agents (and most ports)
Ports use EDI, electronic data interchange, to allow lines/their agents to input data concerning its vessels which can then be accessed by authorised port users including customs, terminal operators and harbour masters
BOLERO – Bill of lading electronic registry organisation – is aiming to digitise the negotiable aspect of BLs (aka the consignee). The number of companies using this is steadily increasing
ESS - Electronic Shipping Solutions – is an electronic BL system created in 2010. It was first adopted in oil and is growing in dry bulk. It is a web based interface with a central registry which stores documents such as BLs securely. There is a ‘lite’ version which allows masters full access to documents and allows them to sign BLs digitally (or issue a letter of protest if needed)