Land Transportation for International Trade

Land transportation carriers (trucks, trains) are used mainly to transport exports to neigh­boring countries as well as to move goods to and from an airport or seaport. A substantial volume of U.S. exports to Canada and Mexico is moved by rail and/or trucks. Compared to rail transport, trucking has the advantage of flexibility, faster service, lower transportation costs, and less likelihood of damage to merchandise on transit. Rail transport has its own unique advantages: capacity to handle bulk cargo, free storage in transit, and absorption of loading, unloading, wharfage, and lighter charges. With the proliferation of free-trade agree­ments in various regions, there is likely to be a marked growth in the role of land carriers in transporting exports among countries that are in the same geographical area. For example, in eastern and southern Africa, an agreement that allows movement of land carriers across countries would make trucks and trains the dominant mode of transportation for exports. This is because land transport already accounts for more than 80 percent of the region’s freight movements; with a regional arrangement, these transportation services could easily be extended to neighboring countries with limited capital investment.

The use of land transportation is considered economically justifiable for large flows of cargo over distances greater than 500 kilometers (310 miles).

1. Road Transportation

Trucks transport about 81 percent of the value of trade between the United States and Mex­ico and 64 percent of that between the United States and Canada each year. This represents $314 billion and $219 billion annually in truck-transported trade with Canada and Mexico, respectively. In Europe, road transportation accounted for 47 percent of intra-EU transpor­tation in 2009 (European Commission, 2011).

The truck industry subsector provides over-the-road transportation of cargo using motor vehicles, such as trucks and tractor trailers. The subsector is subdivided into general freight trucking and specialized freight trucking. This distinction reflects differences in equipment used, type of load carried, scheduling, terminal, and other networking services. General freight transportation establishments handle a wide variety of general commodities, gener­ally palletized and transported in a container or van trailer. Specialized freight transportation is the transportation of cargo that, because of size, weight, shape, or other inherent charac­teristics, requires specialized equipment for transportation.

In the United States, the economic slowdown affected the trucking industry far more than the railroad sector. This is mainly due to the fact that, unlike the trucking industry, the railroad sector is used more to transport of noncyclical commodities such as coal and agricultural products, shipments of which stayed relatively stable despite the economic crisis. The truck­ing industry, which is more dependent on manufacturing and retail demand, experienced a comparatively steep decrease in volume during the economic slowdown. With the crisis compelling production shutdowns in several companies, demand for transportation of goods suffered a considerable decline. Increases in fuel costs also accounted for the downward slide.

The deregulation of the trucking industry has given rise to volatile market conditions for commercial fleets, where intense competition, particularly price based, threatens the existence of several independent carriers. Other factors affecting the performance of the industry include:

  • Different domestic rules on weight, temperature, height, and width of merchandise. Switzerland, for example, prohibits trucks weighing more than 28 metric tons from going further than six miles into its territory forcing truckers to piggyback on railroad cars. Poland does not allow trucking when temperatures reach 30 degrees celsius.
  • State of infrastructure such as road conditions and speed limits affect the smooth trans­portation of goods within and across countries.
  • Government taxes on diesel fuels, the need to meet different pollution standards, and highway tolls affect the performance and profitability of trucking.

2. Rail Transportation

The U.S. freight rail network, consisting of 140,000 rail miles (operated by 7 Class I railroads, 21 regional railroads, and 510 local railroads), is widely considered one of the most dynamic freight systems in the world. The U.S. freight railroads are private organizations that are responsible for their own maintenance and improvement projects. Compared with other major industries, they invest one of the highest percentages of revenues to maintain and add capacity to their system (U.S. Department of Transportation, 2012).

The rail network accounts for approximately 40 percent of U.S. freight moves by ton- miles (the length freight travels) and 16 percent by tons (the weight of freight moved). It is estimated that about 91 percent of rail freight consists of bulk commodities, such as agricul­tural and energy products, automobiles and components, construction materials, chemicals, coal, equipment, food, metals, minerals, and paper and pulp. The remaining 9 percent is in­termodal traffic, which generally consists of consumer goods and other miscellaneous prod­ucts (“intermodal traffic” refers to goods transported on trains before and/or after transfers from other modes of transportation, such as planes, vessels, or trucks). Freight tends to move from ports, manufacturing hubs, and areas of specific economic activity, such as rural areas for agriculture and energy products, to population centers or outlying regions where power plants and large manufacturing facilities are located. Internationally, the U.S. freight rail network connects with Canada and Mexico through several key gateways along the borders. These gateways allow freight railroads to participate in achieving national export goals and facilitating the safe and efficient importation of goods.

In 2009, about 10 percent of goods in the EU (EU 27) were transported by rail within, compared to 37 percent moved via maritime transportation. EU foreign trade transported by rail accounts only for 3.5 percent of the total tonnage and 1.3 percent of the value. A progres­sive development of traffic toward road has successfully captured rail movements (Semaine Internationale du Transport et de la Logistique [SITL], 2012).

3. Rules Governing Inland Carriage

Transportation of merchandise almost always involves the use of an inland carrier (a truck­ing or rail company) to move merchandise from the exporter’s warehouse to the seaport or airport. Inland transportation is governed by domestic legislation unless goods are shipped to a different country or this movement of cargo from warehouse to port is the first part of intermodal transportation to a foreign country. In the United States, different laws, including the Carmack Amendment, govern domestic transportation. Under the Carmack Amend­ment, rail and motor common carriers are liable for the full value of the goods lost, dam­aged, or delayed in transit. However, there are certain exceptions to this strict liability: acts of God, acts of shipper, inherent vice (defects in the goods), acts of a public enemy, and intervention of law. Even though there are no universal agreements, a few regional treaties regulate transportation of goods by road and rail (Murray, 2006). Prominent among these is the Convention on the Contract for the International Carriage of Goods by Road (Conven­tion relative au Contract de Transport International de Merchandises par Route, or CMR, 1956) and the Convention Concerning International Carriage by Rail (Convention relative au Transport Internationaux Ferroviares, or COTIF, 1980). Members include most European countries; a few Middle Eastern nations are members of COTIF. The respective conventions cover areas such as scope of application, liability of the carrier, the use of multiple carriers, and time limits:

  • The conventions generally apply to contracts for the carriage of goods by road or rail between two countries, of which at least one is a contracting party. The convention also applies to carriage by states or public institutions.
  • A carrier is required to issue a consignment note (nonnegotiable) as evidence of con­tract of carriage and condition of the goods. The consignee has a right to demand deliv­ery of the goods in exchange for a receipt and to sue the carrier in its own name for any loss, damage, or delay for which the carrier is responsible. The shipper can change the place of delivery or order delivery to another consignee at any time before the delivery of the consignment note or cargo to the first consignee.
  • In cases involving multiple carriers, each carrier is responsible for the entire transaction.
  • Carriers are liable for loss, damage, or delays up to a liability limit insofar as the contract is governed by the CMR or COTIF. There are, however, certain exceptions to liability in cases such as inherent vice in the goods, circumstances that the carrier could not avoid and the consequences of which he was unable to prevent, or negligence on the part of the shipper.
  • There is a limitation period for bringing action (one year) and for notice of reserva­tions (i.e., notice of damage or loss).

4. Multimodal Transportation

A study on intermodal techniques (rail/truck) in transportation found that improving the competitiveness of intermodal transport for short-distance trips requires the operation of “corridor trains’’ that make short stops every 100 or 200 kilometers along a route (Anony­mous, 1998b). Intermodal transport is used not just to move goods between rail and truck; it is also used for any service that requires more than one means of transportation (e.g., rail and ocean, truck and ocean) under one bill of lading. Such arrangements ideally must seek the fastest and least costly transportation for the shipper. The essence of an intermodal contract is an agreement between different types of carriers (e.g., steamship lines, railroads, trucking firms, airlines) to achieve certain well-defined and carefully described functions. The ad­vantages of such a mode of transport is simplicity for the shipper and consignee (one bill of lading and no other arrangements necessary), reduced damage because of fewer handlings, and reduced pilferage due to limited exposure of cargo. Such services are already offered by the integrators in the airline industry.

Examples of Intermodal Service

A truck moves merchandise from the exporter’s warehouse outside New York City to a rail­road yard some fifty miles away. The railroad takes the container to a New York port, where it will be placed aboard a ship to Rotterdam, Holland. The whole movement is covered by a single contract of carriage issued by the trucker as the initiating carrier.

Fresh oranges that arrive in Miami, Florida, by sea from Chile are then distributed to a network of inland points by air and then delivered door to door to customers by truck.

The UN convention on multimodal transportation (1980) defines international multi­modal transport as the carriage of goods by at least two different modes of transport on the basis of a multimodal transport contract from a place in one country at which the goods are taken in charge by the multimodal transport operator to a place designated for delivery situ­ated in a different country. The term “multimodal transport operator” includes any person who on his or her own behalf (or through another person acting on the operator’s behalf) concludes a multimodal transport contract and who acts as a principal, assumes responsibil­ity for the performance of the contract.

Thus, the main features of a multimodal transport are the carriage of goods by two or more modes of transport under one contract, one document, and one responsible party (Multimodal transport operator [MTO]) for the entire carriage. The MTO might subcon­tract the performance of some or all modes of the carriage to other carriers. The terms “com­bined transport” and “intermodal transport” are often used interchangeably to describe the carriage of goods by two or more modes of transport.

The development of new transportation techniques, such as containerization and other means of unitization of goods, introduced a significant need for modification of commercial and traditional legal approaches to transport. Goods stowed in a container could be trans­ported by different means of transport, such as ships, railway wagons, road vehicles, or aircrafts, from the point of origin to the final place of destination without being unpacked for sorting or verification when being transferred from one means of transport to another. Gradually, more and more operators took responsibility for the whole transport chain under one single trans­port contract. Shippers/consignees needed to pursue one single operator in the event of loss of, or damage to the goods involved in multimodal transport, and this single operator would be responsible for the overall transport, rather than several unimodal carriers. There was thus a need for an international legal framework for multimodal transport of goods.

The Multimodal Transport Convention (MTC) addresses the problems raised by multi­modal transportation including questions pertaining to documentation and the liability of MTOs. It provides for the issuance of one document to serve the entire transportation period and for liability to cover the whole period during which the MTO is in charge of the goods (i.e., from the time the operator takes control of the goods till delivery).

The MTC failed to attract the thirty ratifications needed for entry into force. A number of reasons are attributed for its lack of popularity:

  • It is seen as overly consignor-friendly by the transport industry. Its close association with the Hamburg Rules failed to gain support for it among major maritime nations
  • Higher limitations on liability and uniform liability system: The monetary limitation of liability was modeled on the Hamburg Rules. Under the uniform liability scheme, the MTO is responsible for loss, delay, or damage while the goods are in its control. To escape liability, the MTO must show that it took all necessary measures to avoid the occurrence and its consequences.

In view of the absence of a uniform international convention regulating multimodal transport, there has been a proliferation of diverse regional, subregional, and national laws to fill the gap. Significant differences remain among these sets of rules, creating further disunity at the international level (Faghfouri, 2006).

5. Freight Forwarders in Transportation

A freight forwarder is the party that facilitates the movement of cargo to the overseas desti­nation on behalf of shippers and processes the documentation or performs activities related to those shipments. Freight-forwarding activity dates back to the thirteenth century, when traders employed middlemen, or “frachtors,” to cart and forward merchandise throughout Europe. The frachtor’s responsibility later extended to provision of long-distance overseas transportation and storage services, issuance of bills of lading, and collection of freight, du­ties, and payment from consignees (Murr, 1979).

In the United States, the forwarding industry developed in the late nineteenth century. It started in New York, where the bulk of U.S. export trade was handled, to provide various transportation services to shippers. Ullman succinctly points out the changing role of the ocean freight forwarder in the United States:

Many forwarding concerns originally started as freight brokers, but with the con­tinuing increase in manufactured shipments, the forwarding work took prece­dence over the broker activity. Today, some forwarders handle ship loads of large parcels either on a common carrier or tramp vessels as brokers, but for the most part, forwarders deal with individual shipments varying in size or containers. (Ull- man, 1995, p. 130)

6. Role and Function of Freight Forwarders

The freight forwarder (1) advises the exporter on the most economical choice of transporta­tion and the best way to pack and ship the cargo to minimize cost and prevent damage, and (2) books air, ocean, or land transportation (or intermodal movement of cargo) and arranges for pickup, transportation, and delivery of the goods. The forwarder also ensures that the goods are properly packed and labeled and that documentation requirements are met so the cargo is cleared at the port of destination. When a letter of credit is used, the forwarder ensures that it is strictly complied with to enable the exporter to receive payment. Thus, the advantage of using a forwarder goes far beyond expediting the movement of freight. For­warders help shippers and consignees by tracking and tracing cargo. They can also negotiate better rates with carriers because they can purchase space on airlines or ships at wholesale prices. The wide array of services they provide helps shippers save time and money.

Freight forwarders are a significant part of U.S. commerce and facilitate the growth and expansion of international trade. A U.S. Senate report on the industry describes freight for­warding as follows:

a highly important segment of the economy of the United States in that its func­tioning makes possible participation in the nation’s foreign commerce by many industries and businesses whose lack of familiarity with the complexities and for­malities of exporting procedures might hinder or even preclude such participation if forwarding services were not freely available. (Ullman, 1995, p. 133)

Today, it is generally estimated that more than 90 percent of export firms use the services of an international freight forwarder. Most of the forwarding activity is still concentrated in ocean shipping, although some diversification into air and land transportation has occurred.

A forwarder is distinguishable from a nonvessel-operating common carrier (NVOCC). NVOCCs are international ocean carriers that do not operate their own vessels. They fulfill the role of the shipper with respect to carriers and that of a carrier with respect to shippers. Typical NVOCCs guarantee a steamship line a certain amount of freight per week or month and purchase the necessary space on a wholesale basis for shipment of cargo to and from a given port. They publish their own tariffs and receive and consolidate cargo of different ship­pers for transportation to the same port. They issue bills of lading to acknowledge receipt of cargoes for shipment. Unlike NVOCCs, freight forwarders do not publish their own tariff and consolidate small shipments. Forwarders use the services of NVOCCs and facilitate the movement of cargo without operating as carriers. NVOCCs are often owned by freight for­warders or large transportation companies.

A forwarder also differs from a customs broker in that the latter deals with the clearing of imports through customs, whereas a forwarder facilitates the transportation of exports. The broker is licensed by the U.S. Treasury Department; while the forwarder is licensed by the Federal Maritime Commission (FMC).

Licensing Requirements

To be eligible for an ocean freight forwarder’s license, the applicant must demonstrate to the FMC that he or she (1) has a minimum of three years’ experience in ocean freight forwarding duties in the United States and the necessary character to render such services, and (2) has obtained and filed a valid surety bond with the FMC. A shipper whose primary business is the sale of merchandise can perform forwarding services without a license to move its own shipments. In such a case, the shipper is not entitled to receive compensation from the car­rier for its services. A license is not required for an individual employee or unincorporated branch office of a licensed ocean freight forwarder. A common carrier or agent thereof may also perform forwarding services without a license with respect to cargo carried under such carrier’s own bill of lading (Federal Maritime Commission, 1984).

Freight forwarders have these additional obligations and responsibilities:

  • A description of the freight forwarder as consignee on an inland transport bill of lad­ing (i.e., truck or rail) may subject the forwarder to liability for freight charges to the airport or seaport. This can be avoided by clearly indicating on the forwarder’s delivery instructions that the forwarder is acting merely as an agent and does not have any own­ership interest in the merchandise (see International Perspective 9.4).
  • The forwarder is liable to the shipper for its own negligence in selecting the carrier, handling documentation, directing cargo, and classifying shipments. The forwarder, for example, must not totally rely on the shipper’s instructions with respect to the classification of a shipment. The forwarder must take reasonable measures to ensure that the classification is proper and consistent with the description on the commercial invoice, bill of lading, and other documents.
  • In cases in which the forwarder acts as an NVOCC, its liability is that of a common carrier for loss or damage to cargo.
  • The forwarder’s liability is limited to the lesser of $50 per shipment or the fee charged for its services. Any claims by the exporter against the forwarder must be presented within ninety days of the date of exportation.
  • Each freight forwarder is required to maintain current and accurate records for five years. The records should include general financial data, types of services, receipts, and expenses.
  • Forwarders are prohibited from providing any rebates to shippers or sharing any com­pensation or forwarding fees with shippers, consignees, or sellers. NVOCCs can receive compensation from carriers only when they act as mere forwarders, that is, when they do not issue bills of lading or otherwise undertake carriers’ responsibilities.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

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