International Shipping & Freight Forwarding Blog

Why Clear Definitions between Consignees & Shippers are CRITICAL

Posted by Reid Malinbaum on Fri, Apr 07, 2017 @ 04:47 PM

Here is how you need to be thinking about the relationship between your consignees and shippers - so you can avoid these types of disasters

Don't lose your entire shipment over 3 little letters!

If shipping was not complex enough with customs, federal maritime commission, tariff filing, and transportation security administration regulations, we are CONSTANTLY stepping into pre-existing situations where lack of clarity in responsibilities between shipper and buyer are creating problems so major, that entire shipments are being abandoned.

This is exactly the choice a recent military base client of ours is facing. Somebody in the chain wasn't knowledgeable about who is responsible for costs related to delays from customs, and when a random intensive exam was assigned to them, all hell broke loose.

As an experienced licensed forwarder (since 1984), we have seen a lot, and because of this, we are better prepared to pivot when we need to. We're also able to bring clarity to potential, unforeseeable costs prior to shipping shipping or clearing. There is nothing more frustrating than going through an extenstive customs exam, except going through an extensive customs exam, and being blindsighted by costs you thought the other party was responsible for.

Since inspections are random & far in between, they are not quoted by anybody, and they are completely independent from the costs you pay your freight forwarders. Those costs will always fall to either the shipper, the consignee, or both.

Inspections can be a quick, inexpensive X-ray or intensive exam with different layers of inspections.

How the costs began stacking up:

The Exam:

The X-ray exam is fast & may create 1 day-delay. Should you encounter one, your forwarder should provide the shippers or consignees with access to pay the terminal directly to ensure an impartial billing. Costs typically range from $ 200 to $500. Shippers / consignees can pay directly the CFS to get the release of the cargo.

The intensive exam can take a few days & can be fairly expensive. Unlike the X-ray exam, the intensive exam takes place outside the terminal, and your shipment will need to be picked up by a trucker working with the container freight station (CFS) assigned by customs for the exam.

Then, an ocean container may be partially or fully devanned for inspection. Costs typically range from $ 1,000 to $ 2,000. Shippers / consignees can pay the CFS directly to get the release of the cargo.

Delays:

When your freight is held in customs long enough to miss its departure or more than a day, it is going to be subjected to warehousing fees. Neither your freight forwarder or carriers assume responsibility for any of the costs in this instance. Again, ALL costs related to customs fall on the consignees and/or shippers. 

The Agreement 

We have always recognized the importance of using a pro-forma invoice between the seller & buyer to show the details of the order, description, HS code # (for establishing the customs duty), value, mode of payment, weights & dimensions & the freight term agreed upon.

Your quote is actually the second step, which should follow the agreed-upon pro-forma invoice, and be an exact match. Once, you cross your t’s & dot your I’s, and the deal is processed, your shipment is almost ready. A good international freight forwarding company will issue all of the shipping documents & email you their shipping contract that holds the same idea as the pro-forma. The shipper reviews it & sign it to ensure that all of the parties are in agreement.

Okay, so that would have been the case had we been involved from the beginning. But there would be no story to tell if that were the case. ;)

Sour Grapes:

We were contracted to ship over $100,000 of equipment to an international destination. We already had observed issues with the dimensions & lack of capacity to handle the proper loading of a large shipment onto special equipment. The shipper initially wanted to load it themselves, but needed help, which is why we were brought in then, after the deal was already executed.

Now, for those three little letters....

The shipment left Los Angeles to its destination on a CIF basis (cost of freight & insurance). The shipper requested & agreed to prepay the freight up to the destination port only. All destination port, customs, duty & delivery fees as well as any unforeseeable inspections and consequent demurrage would fall on the consignee.

Download our quick reference Incoterms 2010 chart.

Well, to our dismay, after the freight sat at the port, accumulating storage (demurrage), we discovered that the sales contract didn't match the CIF rules in the shipping contract. The shipper actually sold to the door & the consignee (US Government) refused to pay the excess port fees that they were not expecting.

In this particular scenario, the consignee, a US military base, nobody seems to be in charge, and won't take responsibility, and the storage costs are running rampant.

One of three things will likely happen:

  1. The cargo will be abandoned
  2. The shipper will pay for the excess demurrage
  3. The consignee & the shipper split the difference

In conclusion, buyers & sellers should work through a pro-forma (purchase order) before any deal is finalized, know the potential for issues, and account for them... And UNDERSTAND the terms on your contract. CIF should have given it away, but the people involved didn't seem to understand that.

Learn why FCA, not CIF, is my FAVORITE way of shipping.

My next blog will be filled with good freight stories like ocean containers in a large vessel hit by rogue waves… to be continued...

Interested in working with a freight forwarder who will make you aware of the potential risks of your shipment, and help you choose the best options for you? Click HERE to get a freight quote from ETC today:

Request a free freight quote from ETC International Freight System - a California import/export freight forwarding company

Tags: Shipping Terminology & Teamwork, Supply Chain, customs clearance, Incoterms 2010