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Kuehne & Nagel (Malaysia) Sdn. Bhd.

Airfreight Guide
February 2000
KUL YX / Markus Gassmueller
Version 1.2

Kuehne & Nagel (Malaysia) Sdn. Bhd.


Airfreight Manual

Introduction..............................................................................................5

The aviation industry..............................................................................7


2.1

FLIGHT SCHEDULES AND TARIFFS................................................................................7

2.1.1
The ABC Guides...............................................................................................8
2.1.2
The TACT.......................................................................................................... 8
2.2
SCHEDULED FLIGHTS.................................................................................................. 8

2.3

CHARTER FLIGHTS...................................................................................................... 9

2.4

CONSOLIDATED CARGO.............................................................................................. 9

2.5

INTERMODAL TRANSPORT.........................................................................................10

2.6

THE IATA (INTERNATIONAL AIR TRANSPORT ASSOCIATION).........................................10

2.7

THE ICAO (INTERNATIONAL CIVIL AVIATION ORGANIZATION).......................................11

2.8

THE FIATA (INTERNATIONAL FEDERATION OF FREIGHT FORWARDERS ASSOCIATIONS). 12

Documents in airfreight........................................................................13
3.1

AIR WAYBILL (AWB).................................................................................................13

3.1.1
Airline AWB (direct AWB)................................................................................14
3.1.2
House-AWB (HAWB) / Master-AWB (MAWB).................................................14
3.1.3
Legal regulations............................................................................................. 14
3.2
DELIVERY ORDER..................................................................................................... 15

3.3

LETTER OF INDEMNITY..............................................................................................15

3.4

CONSULAR INVOICE.................................................................................................. 15

3.5

CUSTOMS INVOICE................................................................................................... 15

3.6

OTHER DOCUMENTS IN THE OVERSEAS

TRANSPORTATION...........................................15

Rates and calculation of the airfreight................................................16


4.1

TYPES OF TARIFFS.................................................................................................... 16

4.2

THE AIRFREIGHT CARGO TARIFFS (TACT).................................................................16

4.2.1
The minimum charges.....................................................................................16
4.2.2
General cargo rates........................................................................................ 16
4.2.3
Quantity rates.................................................................................................. 17
4.2.4
Specific commodity rates................................................................................17
4.2.5
Class rates...................................................................................................... 17
4.3
CALCULATION........................................................................................................... 18
4.3.1
Rounding off rules........................................................................................... 18
4.3.2
Calculate the volume.......................................................................................19
4.3.3
The density of air cargo...................................................................................19
4.3.4
Higher Breakpoint-Lower Rate Rule................................................................20
4.4
AIRFREIGHT PAYMENT...............................................................................................20

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4.4.1
4.4.2

Commercial invoice......................................................................................... 20
COD (cash on delivery)...................................................................................21

Incoterms................................................................................................22
5.1

WHAT DO THE INCOTERMS REGULATE?......................................................................22

5.2

WHAT DO THE INCOTERMS NOT REGULATE?...............................................................22

5.3

GENERAL VIEW, RESPONSIBILITIES AND CHARGES......................................................23

5.4

EXPLANATIONS ABOUT THE INCOTERMS.....................................................................27

5.4.1
EXW (EX WORKS)......................................................................................... 27
5.4.2
FCA (FREE CARRIER)...................................................................................27
5.4.3
FAS (FREE ALONGSIDE SHIP).....................................................................27
5.4.4
FOB (FREE ON BOARD)................................................................................28
5.4.5
CFR (COST AND FREIGHT)..........................................................................28
5.4.6
CIF (COST INSURANCE AND FREIGHT)......................................................28
5.4.7
CPT (CARRIAGE PAID TO)............................................................................28
5.4.8
CIP (CARRIAGE AND INSURANCE PAID TO)...............................................29
5.4.9
DAF (DELIVERY AT FRONTIER)....................................................................29
5.4.10 DES (DELIVERED EX SHIP)..........................................................................29
5.4.11 DEQ (DELIVERED EX QUAY)........................................................................29
5.4.12 DDU (DELIVERED DUTY UNPAID)................................................................29
5.4.13 DDP (DELIVERED DUTY PAID).....................................................................30
5.5
GENERAL VIEW ABOUT THE INCOTERMS.....................................................................30

Terms of payment..................................................................................33
6.1

PRE-PAYMENT.......................................................................................................... 33

6.2

BILL OF EXCHANGE................................................................................................... 34

6.3

LETTER OF CREDIT................................................................................................... 34

6.3.1
The functions of the forwarder:........................................................................35
6.3.2
Chart over the letter of credit...........................................................................36
6.4
DOCUMENTS AGAINST PAYMENT................................................................................37
6.5

DOCUMENTS AGAINST ACCEPT..................................................................................37

6.6

PAY AGAINST COMMERCIAL INVOICE..........................................................................37

6.7

OPEN BOOK ACCOUNT.............................................................................................. 37

Container................................................................................................38

Aircrafts..................................................................................................40

Legal Regulations..................................................................................43
9.1

THE WARSAW AGREEMENT.......................................................................................43

9.2

LIABILITY REGULATIONS............................................................................................43

9.3

GENERAL TRANSPORT CONDITIONS OF THE IATA.......................................................44

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10 Air cargo insurance...............................................................................45


10.1

COMMON TYPES OF COVER POLICY...........................................................................45

10.2

COVERED RISKS AND GENERAL EXCLUSIONS..............................................................46

10.3

TYPE OF LOSSES..................................................................................................... 47

10.4

BASIC CLAIM PROCEDURES.......................................................................................48

11 Glossary of shipping terms..................................................................49

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1 Introduction
The major task of a forwarder is in the handling the transportation and logistic
needs of its customers. For this reason, the nature of the forwarding business is
absolutely customer-oriented. Once lost, a customer is not easily regained. A
forwarder can survive only if he has well trained and highly motivated employees,
that can offer a service of excellence.
The traditional activities of a forwarder are:

Ocean Freight (incl. Project forwarding and inland navigation)

Airfreight

Overland transport (Road and Rail)

The forwarder is the connecting link between the shipper and the consignee. He
arranges the shipment, controls the whole transport, arranges the customs
clearance, issues and dispatches the transport documents.
Increasingly modern forwarders must offer value added services such as
warehousing, distribution, insurance and so on. Due to this, the forwarder assumes
a greater role in the value added chain.
Furthermore, the customers want to have easy access to the status information of
their cargo at any time, so the forwarder must have an efficient information
technology. The best information technology is useless if the quality of inputs into
the system is bad. It must be a personal challenge for every employee to enter the
right data into the information system.

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The main KN advantages are:

Global logistic network

Wide range of services

Door-to-Door transport under overall KN management

Complete range of logistics solutions

Individual solutions for individual problems

Communication and information systems tailored to customers needs

Quality management certified in accordance with ISO 9001

This manual shall give you the bases of forwarding and transport so that you are
able to operate with more background knowledge and are able to provide a higher
quality service to our customers.

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2 The aviation industry


Constant advancement is a substantial feature of air traffic. This safe and time
saving type of transportation is more and more used by passengers and for cargo
transportation. Most airlines are still state enterprises and thus the states protect the
market position of their airlines by formulating protective air traffic policies.
In many destinations eventhough an excess supply of passenger and cargo exists,
there are many competitors for the same markets, so that the tariffs are set with
limited profitability. Nevertheless customers still require excellent service, though
the rates are already low.
The following points are important for the customer, if he moves his goods via
airfreight

the correct quantity

the correct quality

the correct place

the correct price

the correct time

the correct information

On short distances, the airfreight is normally still too expensive, but for special
goods like flowers, fresh food and live animals, the airfreight can also be profitable
on short distances as because saving time is the critical factor.
On high value cargo the safety and security aspect is the critical factor for using
airfreight, since almost all airports have high security facilities.
It is important to know that most of airfreight process takes place on the ground
since the actual flying time is only a small part of the entire system.

2.1

Flight schedules and tariffs

Using the following references the user can find all information about air traffic.

ABC / OAG World Airways Guide

ABC / OAG Air Cargo Guide

TACT (The Air Cargo Tariff)

- No. 1, orange

Rules

- No. 2, red

Rates North America

- No. 3, green

Rates World Wide

Internet access

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2.1.1

The ABC Guides

The ABC World Airways Guide is a summary of all flight schedules from all airlines
The ABC Cargo Guide is a summary only of all cargo flights, that means only cargo
aircraft flights.
These two guides are updated each month.
2.1.2

The TACT

The TACT contains all IATA tariffs for all airports of the world, including domestic
and government charges. The TACT is updated regularly and many forwarders
have the TACT also in their EDP system.

2.2

Scheduled flights

An airline obtains a concession from the government of the home country but will be
obliged to provide certain services including publishing fixed flight schedules. For
scheduled flights which are rights necessary, which are given on national level over
air traffic agreements.
Contrary to the sea trade the air trade is not free. In the aviation, the agreements
between the countries are described by the eight-freedom rights below
First Freedom:Fly over the territory of another country without stopover
Second Freedom:

Perform a technical landing (e.g. fueling) on the territory of


another country, but without commercial purpose

Third Freedom:

The right to carry passengers, cargo and mail from the home
country of the operator to another country

Fourth Freedom:

The right to carry passengers, cargo and mail from another


country to the home country of the operator

Fifth Freedom:

The right to carry passengers, cargo and mail from another


country to a third country, but the flight has to begin or to end in
the country of the operator

Sixth Freedom:

The right to carry passengers, cargo and mail from another


country via the home country of the operator to a third country

Cabotage:

Domestic transportation of an airline from another country

The following freedoms are only valid in the European Union (EU):

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Seventh Freedom: The right that an airline of the EU carries passengers, cargo
and mail between two other countries of the EU
Eighth Freedom:

The right that an airline of the EU carries passengers, cargo


and mail between destinations in another country (EUcabotage)

Consecutive Cabotage: The right that an airline of the EU flights to another country
of the EU and performs domestic transportation there

2.3

Charter flights

Some airlines offer their planes also as charter or hire to the customer. Everybody
can charter a plane, not only shippers or forwarders but also other airlines in this
case would have spare capacities or additional capacities to their own fleets.
Also for oversize cargo a fullcharter will be booked, i.e. the Antonow 124 is a
typically aircraft for charter.
At full charter, the customer books the whole plane for a special route, but because
of the higher rates the supply for fullcharter flights are less. To this reason a lot of
airlines offer only a part of the loading capacity on defined routes for charter.
The frequency of charter flights is irregular and on demand only.

2.4

Consolidated Cargo

The agent collects cargo from different shippers and issues the House-AWB for
each shipment. The shipments are consolidated by the agent or the forwarder and
he issues a Master-AWB to the airline for the whole consolidated shipment.
The shipping contract is closed between the forwarder and the airline and the
airlines usually do not know the individual shipper. The selection of the airline is
decided independently by the forwarder. The forwarder appears to the shipper as
carrier and thereby subject to the Warsaw Agreement (see chapter 9.1).
In the IATA regulations, consolidated cargo is only specified as "consolidated cargo
as per attached manifest. Excluded are:

gold Watches or goods with a value above US$ 1000 per Kg

money, securities, beats, stamps and gemstones

live animals

accompanied luggage under class rate

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human remains

The forwarder makes use of the lower rate for the higher weight of the consolidation
and a part of this savings is given to the shipper. Consolidation makes air cargo
cheaper compared if shippers sent the shipments individually. There is one major
disadvantage. Consolidation cargo is without daily departures, so in this case the
advantage of the air transport, speed, is lost. Moreover the consolidation and deconsolidation process of the consolidated shipment takes more time compared to
an individual shipment.

2.5

Intermodal transport

With intermodal transportation the transport between the loading station and the
arrival station is executed over at least two transportation modes. Depending upon
order of the transportation modes it called Sea/Air or Air/Sea transport. The main
purpose is it to reduce the high costs of the airfreight transport but nevertheless to
obtain a faster transit time compared with a purely seafreight transport.
This type of transport is at the moment is only available on selected routes:

Transports to Europe from the US west coast with aircrafts to India or Far East
and then sea transport via the Indian and the Pacific Ocean to Europe

Transports to Europe Dubai ex Asia is a main HUB for cargo which is


transported via the Indian Ocean with vessels to Dubai and then with aircrafts to
Europe

Transports to Middle and South America Miami is a main HUB for cargo which
is transported with vessels from Europe + Asia and then with aircrafts to Middle
and South America

2.6

The IATA (International Air Transport Association)

IATA is the trade association of the world's international airline industry. Originally
founded in 1919, it now groups together nearly 270 airlines, among the world's
largest. These airlines fly over 95 percent of all international scheduled air traffic.
Continual efforts through IATA ensure that people, freight and mail can be move
around the vast global airline network as easily as if they were on a single airline in
a single country - and that members' aircrafts can operate safely, securely,
efficiently and economically -under clearly defined and understood rules.

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IATA is the collective voice of the world's fastest growing transport sector - which, in
turn, is part of the world's largest industry - travel and tourism.
IATA is a useful mean for governments to work with airlines and draw on their
experience and expertise. Industry working standards are developed within IATA.
For third parties, IATA is a collective link between themselves and the airlines.
Passenger and cargo agents are able to make representations to the industry
through IATA and derive the beneficial professional skills of a neutrally applied
agencys levels and service standards.
The advantages of the IATA: Simplification of the terms of transportation, the tariffs
and the transport documents. Therefore it is possible for the customer to send
cargo with different airlines on different sections and use only one AWB.
The members of IATA regularly fix obligatory tariffs, for different IATA traffic zones
during regular conferences held regularly:
Zone 1: North-, Middle- and South Atlantic
Zone 2: Europe, Middle East and Africa
Zone 3: Far East and South-West Pacific
Decisions during these conferences may not be valid due to different governmental
regulations, but usually many countries add these decisions into their aviation law.

2.7

The ICAO (International Civil Aviation Organization)

One of ICAO's main activities is the establishment of international standards, in


recommending practices and procedures covering the technical fields of aviation.
Licensing of personnel, rules of the air, aeronautical meteorology, aeronautical
charts, units of measurement, operation of aircraft, nationality and registration
marks, airworthiness, aeronautical telecommunications, air traffic services, search
and rescue, aircraft accident investigation, aerodromes, aeronautical information
services, aircraft noise and engine missions, security and the safe transport of
dangerous goods are further activities of ICAO. After a standard is adopted by
ICAO, every member government put the standard into effect in its own territories.
As aviation technology continues to develop rapidly, these Standards are kept
under constant review and are amended as necessary.
The different between the ICAO and the IATA is, that ICAO co-ordinates all needs of
aviation infrastructure between the member governments and IATA co-ordinates all

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needs of air transportation between the airlines, the final customer and the member
governments. Both associations always work closely together.

2.8

The FIATA (International Federation of Freight Forwarders


Associations)

FIATA, a non-governmental organisation, represents approx. 40,000 forwarding


firms, also known as the "Architects of Transport", employing around 8 - 10 million
people in 150 countries.
FIATA has a consultative status with the Economic and Social Council (ECOSOC)
of the United Nations, the United Nations Conference on Trade and Development
(UNCTAD), the UN Economic Commission for Europe (UN/ECE), and the UN
Economic and Social Commission for Asia and the Pacific (UN/ESCAP).
It is recognised as the representative body of the freight forwarding industry by
many

governmental

organisations

and

authorities,

private

international

organisations in the field of transport such as the International Chamber of


Commerce (ICC), the International Air Transport Association (IATA), the
International Union of Railways (UIC), the International Road Transport Union
(IRU), the World Customs Organization (WCO) etc.
In short, FIATA is the largest non-governmental organisation in the field of
transportation spreading its influence worldwide.
FIATA's main objectives are:

to unite the freight forwarding industry world-wide

to represent, promote and protect the interests of the industry by participating as


advisors or experts in meetings of international bodies dealing with
transportation

to familiarise trade and industry and the public at large with the services
rendered by freight forwarders through the dissemination of information,
distribution of publications, etc.

to improve the quality of services rendered by freight forwarders by developing


and promoting uniform forwarding documents, standard trading conditions, etc.

to assist with vocational training for freight forwarders, liability insurance


problems, tools for electronic commerce, including electronic data interchange
(EDI) and barcode.
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3 Documents in airfreight
3.1

Air Waybill (AWB)

The AWB is the most important document in the air freight traffic. It must be filled
out correctly and carefully.
For the IATA agent, the error free exhibition and rating of the AWB are a contractual
obligation and the prerequisite for the creation of the " ready for carriage " status,
because subsequently amendments are very complicated and will cost money.
The IATA AWB is produced by the airlines with usually 12 copies each and are
numbered accordingly, but nowadays the AWB is only created in their system and
then the numbers are distributed by the airlines (Electronic AWB-Stock)
The following copies are considered as originals:

No. 3: Original for the shipper


This copy has an important function as a prohibitory document. With
letters of credit, the value of the goods is paid only if the copy No. 3 is
handed out in time to the bank.
In the shipping contract, the sender can exercise the right of the
subsequent order by the presenting the copy No. 3. To prevent this, the
banks usually collect the copy No. 3.

No. 2: Original for the Consignee


The copy No. 2 accompanies the shipment and it normally handed out to
the recipient or his accredited agent at the destination.

No. 1 Original for the issuing carrier


The copy No. 1 stays at the origin.

The remaining copies of the 12 exemplars have no official function and they
have various uses.

With the transfer of goods ready for dispatch together with an AWB to an airline or a
forwarder, which appears as carrier, a freight contract is effected

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The carrier and the customer mutually agree to keep the conditions as per standard
trading conditions (backside of the AWB) and they confirm this by their
acknowledgement.
The contract normally needs two signatures. In aviation, the IATA agent or the
forwarder appears as the legal representative of both parties and therefore, on the
one hand for the shipper and on the other hand, for the carrier which he gives the
same signature.
What the AWB is not!

The AWB is not a negotiable document

It cannot be issued at "to order"

It is not an insurance certificate

3.1.1

Airline AWB (direct AWB)

The airline and the IATA agent issue the AWB for their route network or the contract
network on the airline service or charter service. The recipient fetches the
commodity at the destination cargo office of the airline.
3.1.2

House-AWB (HAWB) / Master-AWB (MAWB)

The forwarders issue the House-AWB for the consolidation transport or the
multimodal transport, if he has the control over goods between the place of
departure and the receiving place. The shippers get the HAWB and for the airlines
the forwarder issues a MAWB for the whole-consolidated shipment.
(see also chapter 3.1.2)
3.1.3

Legal regulations

The airline and house AWB carry the print "Air Waybill" and have the same legal
effect, because the contract and transport conditions correspond with:

Applicability Warsaw agreements

Limit of the liability

Delivery liability to the recipient

Subsequent disposal of the shipper

If these legal requirements are not fulfilled, the forwarder are not able to issue a
transport document with the print "Air Waybill".

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3.2

Delivery Order

The delivery order is issued on demand of the receiver in the place of destination by
the shipping line against return the original-B/L. The different final receivers can
receive their goods with the delivery order from the airline.

3.3

Letter of Indemnity

A written guarantee contract with the shipper which frees the issuer from any claims
for compensation. A letter of indemnity is often connected with bank guarantees.

3.4

Consular Invoice

Documents for customs purposes in the country of destination which must be


issued by the consulate in the country of origin - often against legalization fee.

3.5

Customs Invoice

Form, like consular invoice, the basis for the customs clearance in the country of
destination. Customs invoices are required by countries like Canada or the
Commonwealth. However, they need not be certified nor legalized.

3.6

Other documents in the overseas transportation

Certificates of origin

Radioactivity certificate

Trade bills

Conference certificate

Insurance certificates

Fumigation certificate

Packing lists

Phytosanitary certificate

Quality certificates

Commercial invoice

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4 Rates and calculation of the airfreight


4.1

Types of tariffs

Today there are four types of tariff conceptions with different tariff structures and
types of tariffs.
1. The TACT (The Air Cargo Tariff). This is the tariff of the airlines also known as
the IATA rate.
2. The european tariff. This is a special tariff of the airlines only between
destinations in europe. There is a special structure of the tariff:
Basisrate and Kilorate, a minimum tariff does not apply
3. The express tariff inclusive door door rates.
4. The tariff of the airfreight forwarders based on their buying rate.

4.2

The Airfreight Cargo Tariffs (TACT)

Following the different types of the TACT:

Minimum charges

(M)

General cargo rates (GCR)

(N)

Quantity charges

(Q)

Specific commodity rates (SCR)

(C)

Class rates (Reduction)

(R)

Class rates (Surcharge)

(S)

4.2.1

The minimum charges

The minimum charges are determined based on different traffic areas


TACT No. 1

Rules section 3.4 specified after areas

TACT No. 2 + 3

Tariffs

The reason for the minimum charges is, that the actual handling costs for a
shipment, e.g. 1 kg, is more or less the same as that for a few kilos.
4.2.2

General cargo rates

This tariff applies with cargo, which weight below than 45kgs / 100kgs. The valid
minimum rate for each traffic zone must receive attention. The normal (under 45 kg)

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rate is applied whenever the transportation costs are higher than the minimum
charges but does not qualify for the 45 kg quantity rate.
4.2.3

Quantity rates

This tariff is proportionally reduced in relation to the normal tariff. Depending upon
traffic zone this is applied starting from 45 kg or 100 kg onwards (300 kg, 500 kg,
1000 kg). Further weight grades exists for the application of quantity discounts over
the Atlantic or the Pacific.
Whenever a shipment reaches a given weight breakpoint the respective rate can be
applied. The higher weight breakpoint, the lower the per kilo rate.
4.2.4

Specific commodity rates

Specific commodity rates (SCR) are special rates for specific commodities on
selected routes. These rates vary from city pair to city pair and are only applicable if
published. They can be identifying in TACT by four digit numbers. Each number
represents an specific commodity (i.e. electronics) and each SCR has a weight
breakpoint attached (= minimum chargeable weight)
4.2.5

Class rates

This tariff is applicable only for special type of goods between strictly defined traffic
areas. (TACT-Rules 3.7)
The class advice are published not in absolute numbers, but as proportional
Reductions or Surcharges related to the normal tariff (N).
Reduction

= class rate (R)

Surcharge

= class rate (S)

Additional deductions are usually not possible, but the rules for the minimum are to
take into account.

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Examples for goods that are carried under class rates:


Surcharge (S)

- animals
- high value goods
- watches made from precious metal
- human remains and urns

Reductions (R)

- empty cages for animals


- magazines, books, catalogues, publications for blind
people
- traveller luggage

4.3

Calculation

4.3.1

Rounding off rules

Volume
The volume is always calculated with whole numbers and they are always in the
order: L/W/H (length x width x height). The numbers rounded down from 0.1 to 0.4
and rounded up from 0.5 to 0.9.
Example:
81.4 cm x 74.6 cm x 62.5 cm => 81 cm x 75 cm x 63 cm (L x W x H)
Weight
The chargeable weight is always rounded up to the next half kilo or the next full kilo.
Pounds (LB) are always rounded up to the next full pound.
Example: 25.3 kg => 25.5 kg
25.6 kg => 26.0 kg
Currency
This rounding off rule is in the Tact No. 2 and 3 (red and green book) rule 5.3.1. For
currencies, which exchange rate is not specified, the banking rules are to be used.
Example:
3.800 MYR/kg => 3.8 MYR/kg

3.850 MYR/kg => 3.9 MYR/kg

3.801 MYR/kg => 3.8 MYR/kg

3.899 MYR/kg => 3.9 MYR/kg

3.849 MYR/kg => 3.8 MYR/kg

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4.3.2

Calculate the volume

The Airfreight is calculated based on the gross weight, provided that the
volume/weight ratio does not exceed 6000 cm3 per Kilo.
L x W x H [cm3] x {number of pieces} / 6000 = dimensional weight
dimensional weight < gross weight => rating after the gross weight
dimensional weight > gross weight => rating after the dimensional weight
The higher weight must be applied for the rate calculation!
Example No.1:
Shoes with a gross weight 28.5 kg and 70 x 60 x 50 [cm]
70 x 60 x 50 [cm] = 210000 [cm3]
210000 / 6000 = 35.0 [kg] dimensional weight
The rating takes place in this case with 35kg dimensional weight.
Example No.2:
Spare parts with a gross weight 55.0 kg and 80 x 60 x 60 [cm]
80 x 60 x 60 [cm] = 288000 [cm3]
288000 / 6000 = 48.0 [kg] dimensional weight
The rating takes place in this case with 55kg gross weight.
4.3.3

The density of air cargo

Density is the relation between weight and volume, i.e. kg / m3.


Calculation: e.g. weight = 875 kg and Volume = 3.5 m3
875 kg / 3.5 m3 = 250 kg/m3
It must be differentiate: Low density cargo

: < 250 kg/m3

Medium density cargo

: 200 250 kg/m3

High density cargo

: > 250 kg/m3

Aircrafts do not have unlimited capacity. It is limited either by weight or volume.


On short flights or long flights with stopovers with not so much fuel required, the
aircraft has a higher weight capacity. The limited factor is the volume.
On long non-stop flights, where a lot of fuel is required, is a completely different
situation. Because of the higher quantity of fuel, the weight capacity of the aircraft is
reduced and so the limiting factor is the weight.
For volume restricted flights the airlines prefer high density cargo.
For weight restricted flights the airlines prefer low density cargo.

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4.3.4

Higher Breakpoint-Lower Rate Rule

Based on the tariff structure it is possible to upgrade the cargo to lower freight
costs.
Example:
Two shipments: a) with 38 kg
b) with 45 kg
The rates in SGD for the city pair Singapore (SIN) and Zurich (ZRH) are:
M
100.00
N
21.90
45
16.43
250
8.28
500
7.50
Normally it will be

38 x 21.90 SGD = 832.00 SGD, alternatively


45 x 16.43 SGD = 739.35 SGD

calculated:
But it is obvious that this cannot be correct, the smaller shipment should not cost
more than the bigger shipment.
Therefore we have the Higher Breakpoint-Lower Rate Rule which says, that we can
apply the higher breakpoint rate for a shipment with a lower weight.
In this case in the AWB is to be written:
Gross weight:

38 kg

Chargeable weight:: 45 kg
Charge:

16.43 SGD

This procedure is also called Upgrade or alternative calculation

4.4
4.4.1

Airfreight payment
Commercial invoice

For the protection of the freight payment the carrier has the right to hold the goods
until all charges have been paid.
In the AWB it is to be marked whether the airfreight and additional expenses are to
be paid from the shipper or consignee.
If the costs to the airport of destination are to be paid by the shipper, then it called
"Freight Prepaid" and if the costs to the airport of destination are be paid by the
consignee, then it called "Freight collect".

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If the air freight is not paid by the receiver, there is a holding back right against the
receiver as well as a freight claim possibility against the shipper.
Is generally prohibited to make a transport agreement without issuing the AWB to
prepaid or collect. The following goods can be carried without issuing the AWB to
prepaid or collect, if the shipper guarantees for the airfreight:

Samples

Perishable goods

Living animals / pets

Alcoholics drinks

Dead bodies, human remains

Goods, which commercial value is

Gifts

Newspapers,

printed

matters,

press photos

lower than the transport costs

Further details for each country are in TACT No.1 Rules (orange book), section
7.2.2.
4.4.2

COD (cash on delivery)

Today, this type of collection in the international trade is not very common, because
of difficult foreign exchange regulations. With consolidated cargo the forwarder can
use COD, if he is certified by the foreign exchange regulation. The amount of COD
may only be specified on the house AWB.
Further details about COD are in TACT No.1 Rules (orange book), section 8.3

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5 Incoterms
There are many risks for the seller and buyer in international trade because every
country has its own standards. If the sales contracts are not adequately drafted, the
possibilities for misunderstandings and costly disputes are high.
The Incoterms are the official ICC rules (ICC = International Chamber of
Commerce) for the interpretation of the most commonly used trade terms and
facilitate the conduct of international trade. Reference to the Incoterms in a sales
contract defines clearly the parties respective obligations and reduces the risk of
legal complications.

5.1

What do the Incoterms regulate?

The Incoterms are a part of the contract of sale. They define the rights and the
obligations of the seller and the buyer. The following points are regulated with the
Incoterms:

Delivery

Transport documents

Transfer of the risks between seller and buyer

Transfer of the costs between seller and buyer

The Incoterms regulate exclusively the relationship between seller and buyer. The
forwarders and carriers are not concerned of the Incoterms.

5.2

What do the Incoterms not regulate?

The validity of the contract of sale

Delivery delays

Payment conditions

Legal claims to third parties like forwarders or carriers

Incoterms are only valid, if they are explicitly mentioned in the contract of sale or if
there is an additional agreement.
Adding to or modify the Incoterms is prohibited.

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5.3

General view, responsibilities and charges

Group

Payment

Group E Collect Clause


Group F

Group C

Main Transport not


paid by the Seller

Shortform

Name

Type of Transport

EXW Ex Works

named Place

Any mode of Transport

FCA

Free Carrier

named Place

Any mode of Transport

FAS

Free alongside
Ship

named Port of
shipment

Only maritime and


inland waterway

FOB

Free on Bord

named Port of
shipment

Only maritime and


inland waterway

named Port of
Destination

Only maritime and


inland waterway

Main Transport paid


CFR Cost and Freight
by the Seller

Group D Arrival Clauses

Place

CIF

Cost, Insurance
and Freight

named Port of
Destination

Only maritime and


inland waterway

CPT

Carriage paid to

named Place of
Destination

Any mode of Transport

CIP

Carriage and
named Place of
Insurance paid to Destination

Any mode of Transport

DAF

Delivered at
Frontier

named Place

Any mode of Transport

DES Delivered ex Ship

named Port of
Destination

Only maritime and


inland waterway

DEQ Delivered ex Quay

named Port of
Destination

Only maritime and


inland waterway

named Place of
Destination

Any mode of Transport

named Place of
Destination

Any mode of Transport

DDU

Delivered Duty
unpaid

DDP Delivered Duty paid

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Group E: Departure / Group F: Main Carriage Unpaid


Service

EXW
EXWORKS
Responsibility
& Charges

Warehouse storage at
point of origin
Warehouse labor
charge at point of origin

FAS FREE
ALONGSIDE
SHIP
Responsibility Responsibility
& Charges
& Charges
FCA FREE
CARRIER

FOB FREE
ONBOARD
VESSEL
Responsibility
& Charges

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

Export packing

SELLER

SELLER

SELLER

SELLER

Loading at point of
origin

BUYER

SELLER

SELLER

SELLER

Inland freight

BUYER

BUYER***

SELLER

SELLER

Port receiving charges

BUYER

BUYER

SELLER

SELLER

Forwarders fee

BUYER

BUYER

SELLER*

SELLER*

Loading on ocean
carrier

BUYER

BUYER

BUYER

SELLER

Ocean / air freight

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

Charges in foreign port /


airport
Customs duties and
taxes abroad
Delivery charges to final
destination
*
**
***

The payment of the forwarder's fees is sometimes controversial, depending on the contract of
sale.
Risk of loss or damage is transferred from seller to buyer when goods have been delivered to the
carrier.
Responsibility may be either the buyer or seller.

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Group C: Main Carriage Paid

Service

CIF COST
CFR COST &
INSURANCE
FREIGHT
FREIGHT

CIP**
CARRIAGE
INSURANCE,
PAID TO
Responsibility Responsibility
& Charges
& Charges
CPT**
CARRIAGE
PAID TO

Responsibility
& Charges

Responsibility
& Charges

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

Export packing

SELLER

SELLER

SELLER

SELLER

Loading at point of
origin

SELLER

SELLER

SELLER

SELLER

Inland freight

SELLER

SELLER

SELLER

SELLER

Port receiving charges

SELLER

SELLER

SELLER

SELLER

Forwarders fee

SELLER

SELLER

SELLER

SELLER

Loading on ocean
carrier

SELLER

SELLER

SELLER

SELLER

Ocean / air freight

SELLER

SELLER

SELLER

SELLER

BUYER

BUYER***

SELLER

SELLER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

BUYER

Warehouse storage at
point of origin
Warehouse labor
charge at point of origin

Charges in foreign port /


airport
Customs duties and
taxes abroad
Delivery charges to final
destination
*
**
***

The payment of the forwarder's fees is sometimes controversial, depending on the contract of
sale.
Risk of loss or damage is transferred from seller to buyer when goods have been delivered to the
carrier.
Responsibility may be either the buyer or seller.

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Group D: Arrival

Service

Responsibility
& Charges
Warehouse storage at
point of origin
Warehouse labor
charge at point of origin

DEQ
DELIVERED
EX-QUAY
DUTY PAID
Responsibility Responsibility
& Charges
& Charges

DAF
DES
DELIVERY AT DELIVERED
FRONTIER
EX-SHIP

DDU
DELIVERED
DUTY
UNPAID
Responsibility
& Charges

Responsibility
& Charges

DDP
DELIVERY
DUTY PAID

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

Export packing

SELLER

SELLER

SELLER

SELLER

SELLER

Loading at point of
origin

SELLER

SELLER

SELLER

SELLER

SELLER

Inland freight

SELLER

SELLER

SELLER

SELLER

SELLER

Port receiving charges

SELLER

SELLER

SELLER

SELLER

SELLER

Forwarders fee

SELLER

SELLER

SELLER

SELLER

SELLER

Loading on ocean
carrier

SELLER

SELLER

SELLER

SELLER

SELLER

Ocean / air freight

SELLER

SELLER

SELLER

SELLER

SELLER

SELLER

BUYER

SELLER

SELLER

SELLER

BUYER

BUYER

BUYER

BUYER

SELLER

BUYER

BUYER

BUYER

SELLER

SELLER

Charges in foreign port /


airport
Customs duties and
taxes abroad
Delivery charges to final
destination
*
**
***

The payment of the forwarder's fees is sometimes controversial, depending on the contract of
sale.
Risk of loss or damage is transferred from seller to buyer when goods have been delivered to the
carrier.
Responsibility may be either the buyer or seller.

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5.4
5.4.1

Explanations about the Incoterms


EXW (EX WORKS)

"Ex Works" is the minimum/lowest obligation of a seller under Incoterms. The seller
agrees to make the goods available to the buyer at the seller's premises (named
place). The seller under EXW is not even responsible for bearing the cost of loading
the goods onto the vehicle provided by the buyer, unless otherwise agreed in
advance. The buyer bears the full cost and risks involved in bringing the goods from
that EXW location to the ultimate destination. N.B. "Works" can mean "factory" or
"warehouse" or "plant" - virtually anything defined by seller since EXW is always to
be accompanied by a "named place". It is sellers responsibility during initial
negotiations to clearly name the place/location.
5.4.2

FCA (FREE CARRIER)

This is a term designed to meet the needs of multimodal transportation, and is also
ideally suited when buyer has named a transportation intermediary to take control of
their cargo PRIOR to loading on board a vessel, aircraft, barge, etc. It is based
upon the same principle as FOB (see below), except that the seller has fulfilled its
obligations when the goods have been delivered to the "carrier" or "transportation
intermediary" (usually named) at the "named place". "Carrier" means any person by
whom or in whose name a contract of carriage (by road, rail, air, sea, barge, ferry,
or any combination of these modes - thus "multi-modal") has been made. A
transportation intermediary can also include "forwarder, NVOCC, consolidator,
distributor". Under FCA the seller has fulfilled its obligation upon delivery to any of
the above. The usual instruments to prove such fulfillment are Bills of Lading,
Waybills, Cargo Receipts, and FCR's (Forwarder's Certificate of Receipt), but
completion can be proven by any means acceptable to buyer and seller (i.e.
electronic notification from carrier/intermediary to buyer).
5.4.3

FAS (FREE ALONGSIDE SHIP)

Under FAS terms, the seller is required to deliver the goods alongside the actual
ship on the pier/quay. From that point forward, the buyer bears all costs and risk.
The chief difference between FAS and FOB (see below) is that under FAS terms the
buyer (not the seller) is required to clear the goods for export, and pay the cost of
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loading the goods. (In modern multimodal transport, this can be a very problematic
term, since proving actual delivery to "shipside" might be impossible. This term is,
however, commonly used in shipments of large items via breakbulk and charter
depending on special trade lanes)
5.4.4

FOB (FREE ON BOARD)

Goods shipped under FOB terms are placed on board the ship by the seller at the
specific port of shipment named in the sales agreement/purchase order/contract. All
costs and risks from the point where the cargo "crosses the ship's rail" (i.e. is lifted
from the quay/pier onto the vessel) passes to the buyer. (By its very nomenclature,
this term should not be used for airfreight - FCA should be used instead.)
5.4.5

CFR (COST AND FREIGHT)

CFR has a sometimes confusing "double standard". Under CFR, the title and risks
change at the ship's rail, just as in FOB terms. But the cost allocation is different.
For goods shipped CFR, the seller pays all costs to deliver the goods up to the
named port of destination (while under FOB, above, the buyer is responsible for
those costs).
5.4.6

CIF (COST INSURANCE AND FREIGHT)

In its simplest form, CIF is CFR + Insurance. The seller must procure transport
insurance against the risk of loss or damage to the goods (to the extent that is
mutually agreed upon in the sales agreement). Seller contracts with an insurance
company or agent and pays the premium - but issues insurance in a form/format
that allows the buyer to later make a claim directly against the insurance company
or the agent. (Since Title/Risk has changed hands at FOB point, the seller is no
longer entitled to make a claim, unless specifically on behalf of the buyer, who, in
fact, owns the goods.)
5.4.7

CPT (CARRIAGE PAID TO)

Just as CIF can be considered CFR plus Insurance, CPT can be considered to be
FCA plus carriage. The Risk/Title will change hands when the shipment is turned
over to the carrier or intermediary, but the seller additionally prepays the
transportation costs. This term is meant to be used in place of FOB when dealing
with intermodal transportation methods or dealing with shipments turned over to a

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transportation intermediary for furtherance or for consolidation and movement at a


later date. It removes the "over the ship's rail" requirement.
5.4.8

CIP (CARRIAGE AND INSURANCE PAID TO)

See also CIF, above. This is CPT plus insurance. All the same comments under CIF
pertain to title and risk. The difference, again, is the removal of the "on board" or
"over the ship's rail" requirement.
5.4.9

DAF (DELIVERY AT FRONTIER)

DAF means that the seller is obliged to move the goods to the named place at the
frontier (border crossing). This is primarily a rail/truck term. The seller bears all
costs/risks up to this point, but is not responsible for customs clearance, duty, and
taxes.
5.4.10 DES (DELIVERED EX SHIP)
Utilization of DES requires that the seller make the goods available to the buyer "on
board the ship at the place named in the sales contract". Unlike CFR and CIF
terms, the seller has agreed to bear not just cost, but also Risk and Title up to the
arrival of the vessel at the named port. Costs for unloading the goods and any
duties, taxes, etc are for the Buyer. A commonly used term in shipping bulk
commodities, such as coal, grain, dry chemicals and when the seller either owns or
has chartered their own vessel.
5.4.11 DEQ (DELIVERED EX QUAY)
This is DES plus unloading costs. Duty/Taxes will still be to buyers account, but the
seller has additionally agreed to pay for the discharge (unloading) of the cargo. As
with DES, essentially a term for bulk commodities.
If the parties wish to include in the sellers obligations all or part of the costs payable
upon import of the goods, this should be made clear by adding explicit wording to
this effect in the contract of sale.
5.4.12 DDU (DELIVERED DUTY UNPAID)
DDU terms require that the seller delivers the goods to the buyer, UNCLEARED
FOR IMPORT, at the point or place named in the sales agreement. The seller bears
all costs and risks up to this point/place.

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5.4.13 DDP (DELIVERED DUTY PAID)


Just as EXW represented the seller's minimum obligation in an international
transaction, DDP would represent the seller's maximum obligation. (Under
Incoterms it is possible to accept more risk/obligation contractually, but Incoterms
ends at this juncture.) Under DDP, seller agrees to all costs and risks, including
customs clearance fees and payment of import duties, up to the named place/point.
Buyers and Sellers sometimes agree that taxes (such as VAT or Excise or Luxury
TAX) are not included in these terms. In such cases, additional words should be
added, such as "Delivered Duty Paid to any own, any Country, excluding VAT
and/or other taxes.
This distinction is very important. Taken literally, DDP does not mention "tax", but a
buyer will generally take the term to be the international equivalent of a shipment
prepaid to the buyer's door (i.e. no charges of any kind to buyer's account). The
seller may have originally intended it so, but may not have specified "including
taxes" when costing out the transaction, and can be left paying much larger
amounts than anticipated. With such a possibility for contention, it is best to simply
list the items one intends the other to pay or not pay.

5.5

General view about the Incoterms

(Please see next page)

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Seller

Carrier

Border Port

Port

Customs Buyer
EXW
FCA
FAS
FOB
CFR
CIF

Seller bears all risks


Seller bears all costs
Seller is responsible for insurance
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Seller

Carrier

Border Port

Port

Customs Buyer
CPT
CIP
DAF
DES
DEQ
DDU
DDP

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6 Terms of payment
The terms of a contract of sale are dependent on supply and demand and market
conditions. The contract must be drafted in accordance with the laws of all involved
countries.
Agreements about price, quality, packaging, delivery deadlines, transportation type
and after sales service are very important because international competition is very
fierce. Furthermore, special importance is placed on the sort of financing.
The typical risks in international trade are:

Collection risk

Currency risks

- economic risks

Process risks

- political risks

Transport risks

- manufacturing risks
- export risks
The correct selection of the terms of payment can minimise these risks.
Usual terms of payment are:

Pre-payment

Bill of Exchange [B/E]

Letter of credit [L/C]

Documents against payment [D/P]

Documents against acceptance [D/A]

Payment against a commercial invoice

Open book account

6.1

Pre-payment

Pre-payment is the safest and simplest term of payment for the seller. The buyer,
however, bears the full risk, without the possibility to secure himself.
The means of payment are bank transfer or cheque.
Bank transfer: The foreign bank debits the account of the buyer and transfers the
funds to the sellers account overseas. A transfer permission must be present.

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Cheque: A prerequisite for payment by cheque is a credit-worthy customer. With a


foreign currency cheque the cheque purchase course is brought in calculation.

6.2

Bill of exchange

Definition: A Bill of Exchange is an unconditional order in writing addressed by one


person to another. Signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a certain sum
of money to or to the order of a specified person, or to a bearer.

The bill of exchange is an unconditional order in writing, that means: A bill of


exchange says quite clearly pay without any conditions at all.

It is addressed by one person to another. The person who writes the order out
called the drawer, the person or company which is addressed called drawee.

It is signed by the person giving it. When the drawer sign the bill of exchange he
immediately becomes liable on the bill (indeed everyone who signs the bill
becomes liable on the bill) and will be obliged to honour it on the due day.

It is a certain sum. A clear amount must be stated and only this amount has to
be paid.

6.3

Letter of credit

The letter of credit is a limited promise to pay and must be redeemed upon the
correct fulfilment of the credit conditions. The letter of credit is used with many
overseas shipments application. Under a letter of credit the documents are
exchanged against payment.
There are two forms of letters of credit; revocable and irrevocable. Each letter of
credit, which is not called irrevocable, must be regarded as revocable, even if it is
provided with a certain run duration (validity period).
Irrevocable letter of credit: It obliges the credit-opening bank (indifferent, the native
or foreign bank) to collect the documents mentioned therein within the validity period
of the credit. In maritime transport payment is usually effected upon remittance of
the B/L.
Revocable letter of credit: It can be recalled, as are the designation suggests, at any
time. It presupposes therefore a bond of trust between buyers and sellers and is
usually rarely applied, because it offers little security.

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Letter of credit regulations: Under normal conditions the letter of credit regulates the
following details:

Important declarations/agreements between sellers and buyers

Legal regulations of the receiving country

Cargo handling

Dates

The conditions specified in the letter of credit are to be kept mandatory.

6.3.1

The functions of the forwarder:

The forwarder has to check and detect, which regulations of the letter of credit
concern him and whether he can accomplish the requirements.
The important points are:

Shipment expiry

Submission expiry of the documents

Co-Loading permitted / not permitted

Transhipment permitted / not permitted

Port of loading and destination

Shipping company or flag regulation

Invoice

Transport documents

Certificates

If it is predictable that individual request are not fulfillable, the sender must be
informed immediately. After consultation with the bank, a decision is made upon
weather to accept the discrepancy or to apply for an amendment to the L/C.

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6.3.2

Chart over the letter of credit

Confirming
Bank

Issuing
Bank

9
10

PoL

PoD

11
12

13

Exporter

Importer

1. Contract of Sale between the Exporter (Seller) and the Importer (Buyer)
2. The importer (opener of the letter of credit) requests the initialisation letter of
credit with his bank (issuing bank) and this checks its solvency
3. If the importer is solvent, the letter of credit is opened and the bank gives its
promise to pay to the bank (confirming bank) of the exporter (beneficiary).
4. The confirming bank informs the exporter about the opened letter of credit.
5. The exporter sends the good to the port of loading.
6. He sends the documents to his bank, the confirming bank.
7. Thereupon the inland bank pays him the cash with receipt of the documents.
8. The transport of the goods.
9. During the transport of the goods, the confirming bank transmits the documents
to the issuing bank.
10. In response the confirming bank receives the money from the issuing bank.
11. When the goods arrived at the Port of Discharge, the importer receives the
documents from issuing the bank.
12. Thereupon the importer pays the bank the money with receipt of the documents.
13. Against presentation the documents the importer gets the goods from the port.

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6.4

Documents against payment

Document against payment, in the international trade, is a frequently used payment


form. D/P is very similar to the letter of credit from the flow; the difference exists in
the fact that the banks do not assume as much obligations.
The exporter gives his bank the instructions to collect the payment from the buyer in
exchange for the documents. The corresponding bank will execute the job as a
collection bank and will check the documents beforehand for accuracy and
correctness.

6.5

Documents against accept

The same conditions as with the D/P apply, only in this case the documents are
handed out against the acceptance of a B/E. For this, the collection bank must be
expressly instructed. Dates of payment can be granted up to 180 days.

6.6

Pay against commercial invoice

The exporter dispatches the goods and the commercial invoice to the importer. The
amount must be usually paid after receipt of the goods. This payment form
presupposes a very good bond of trust between exporter and importer.

6.7

Open book account

This agreement is favourable only for the importer, because he must pay only upon
the sale of the goods. The date of payment is thus open.

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7 Container
Nowadays the cargo is containerised on the ground and loaded into aircraft only just
before it takes off. For this reason the ground dispatching and the unloading process
at the airports are usually automated and organised. Therefore it is possible to load
or unload a Boeing 747F with 38 pallets in two to three hours.
The following table shows the possible load means, which are be found in the TACT
No. 1 (orange book) chapter 3.10.7.
The ULD (Unit Load Devices) are generally normed but there are slightly differences
from carrier to carrier respectively manufacturer to manufacturer of the ULDs. They
also using different prefixes for the same type of ULD.
Each airline permits different gross weights and volumes for the individual load
means; therefore it is absolutely necessary to obtain the necessary information
directly from the airline.

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8 Aircrafts
There is a variety of air freighters, which possess all their specific loading plans.
There are usually several versions of one particular type of aircraft. If this is the case
there are many possible loading plans. Two basic examples are summarised below:

Boing 747-400 F
Cargo weight
Cargo volume
Pallet (Main Deck)
LD3 (Lower Deck)
Doors
Nose
Side
Lower Deck
Bulk

117.5 t
24,923 cuft
30
32
Width Height
[Inch]
140
98
134
120
104
66
44
47

706 cbm

Width

Height
[cm]
355.6 248.92
340.36 304.8
264.16 167.64
111.76 119.38

MD-11 F
Cargo weight
Cargo volume
Pallet (Main Deck)
LD3 (Lower Deck)
Doors
Main Deck
Lower Deck FWD
Lower Deck AFT
Bulk

89.4 t
20,778 cuft
588 cbm
26
32
Width Height Width Height
[Inch]
[cm]
140
102 355.6 259.08
104
66 264.16 167.64
70
66 177.8 167.64
30
32
76.2 81.28

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9 Legal Regulations
9.1

The Warsaw Agreement

The Warsaw Agreement (WA) is signed by 130 nations and it is the most important
regulation for air traffic. The most important regulations are specified on the reverse
side of the AWB. The WA simplifies the regulations over the liability and subsequent
disposal of the shipper. It applies for charter as well as scheduled flights.
Subsequent disposal is the right of the shipper to prevent the takeoff or the delivery,
if he presents the copy No. 3 (original) of the AWB. In contrast the IATA agent does
normally not need to submit the copy No. 3, he must however guarantee that it is
still with the shipper. Otherwise the IATA agent is liable to pay damages, because
did not perform his due diligence.
The note "not negotiable" on the AWB is not article of the WA and has no meaning
for the shipping contract and the transport.

9.2

Liability regulations

The WA and supplementary agreements limit the liability for loss and damage of the
cargo. The limit of liability depends on the ratified agreement and the state, where
the claim is made. 17 SDR (Special Drawing Rights) are usual, 56 countries in the
world ratify this regulation.The SDR is an artificial currency, calculated by the
currencies the US, Germany, Japan, French and Great Britain.
For AWB, the limit of liability can be increased by declaring the value of the goods
under the column "value for carriage" .
For visible damages, the forwarder must immediately declare the damages in written
form. Should the damages be visible only after unpacking the cartons, the
declaration of damages must be done within a period of 14 days. The due diligence
of the forwarder includes the checking the goods for visible damage or theft.
Compressed cartons are indications for possible damage, while missing steal or
plastic tapes and pasted surfaces of the carton are indications for theft.
The due diligence of the forwarder as an IATA agent

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Documentation: Survey whether all necessary documents for customs clearance


are available, if they must accompany goods (commercial invoice,
customs invoice, consular invoices..).
Cargo:

Survey the weight and the dimensions and whether the goods are
ready for transport.

Reservation:

Reservation with the airline, monitoring of the dispatching and


communication with the shippers if something goes wrong

Label:

All necessary bar code are to be labelled on the goods. Falsely


labelled goods may be misrouted and the agent will be responsible
for the costs.

AWB:

The AWB is to be tariffed with a tariff from the "TACT". Also


transport regulations about declaration of value are to be
considered, so that consignments with declared value can be
supplied to the security agency.

Customs:

The shipment is considered as to transferred the airline only after


customs clearance is effected.

9.3

General transport conditions of the IATA

The general transport conditions of the IATA is applicable world-wide and regulate
the acceptance, transport and the delivery of the goods The IATA agent has a
contract with the airlines in the context of a uniform agreement called "Cargo
Agency Agreement". Major task of the IATA agent is to transfer the cargo "ready for
carriage to the airline.
Legally the transport contract is between the shipper and the airline; the agent is
only a broker. The agent is entitled to act as a broker against both parties:
Airline:

Commission of 6% (varies by country) of the freight specified in the AWB


The right to get reduced flight tickets
Open credit for still owed freights

Shipper: Payment of additional expenses (e.g. terminal handling costs)


AWB fee for the issue of the AWB, this fee is determined of the IATA.

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10 Air cargo insurance


Air insurance occupies a small, but important position in aviation. Since it affords
protection against fortuitous losses, it enables all those engaged in overseas trade
to venture their capital more freely than would otherwise be possible and thus to
expand the scope of their operations.
Air insurance, therefore, is essential to overseas commerce, and although there is
no legal compulsion on a merchant to insure his goods, the bank insists on it. Apart
from this reason and where shipments are not financed by a bank. common
prudence calls for air insurance protection, particularly as its cost is but a fraction of
the marker value of the goods.
The need for cargo insurance mostly arises from contracts for the sale of goods and
transporting of those goods from the seller to the buyer. Insurance provides the
security from financial loss which may result if the goods are lost or damaged during
the transit.

10.1 Common types of cover policy


Single Transit (Voyage Policy)
This policy covers goods of an individual transit, irrespective of the length of the
time.
Annual Air Policy
This is general terms to describe an insurance contract applying for a nominated
term, usually 12 month.
Open Cover
An open cover is only an agreement to insure. The client agrees to insure all his
shipments with the insurance company and the insurance company agrees to
accept the insurance of the goods in terms which are already negotiated.
The open cover provides automatic protection for all transport of the client and this
contract is not limited in time. The client has to advise all details of each shipment
and to pay the required premium.

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10.2 Covered risks and general exclusions


The most usual covering form of the transport insurance are the ICC (institutes
cargo clauses). There are three covering forms A, B and C for the overland, the river
and the oversea transportation. For the air transport is an extra covering form
named I.C.C. Air.
Risk covered
(Y = covered)
Crash
Fire and Explosion
Collision
Earthquake, Volcanic Eruption, Lightning
Cyclone, Tornado, Flood
Water damage
Total loss of any package during loading or discharged
Theft, pilferage and non delivery
Rough or inproperhandling or contamination

I.C.C.
Air
Y
Y
Y
Y
Y
Y
Y
Y
Y

General Exclusion
I.C.C.
(N = not covered)
Air
Wilful misconduct of the assured
N
Ordinary leakage, loss in weight or volume, wear and tear
N
Insufficiency or unsuitability of packing or preparation of the goods
N
Inherent vice or nature of the goods
N
Unfitness of aircraft, conveyance or container
N
Delay even thought caused by a risk insurend against
N
Insovency of carrier
N
Deliberate damage or destruction on the subject matter insured
N
Nuclear fission or fusion or other reaction or radioactive force matter
N
War and strikes
N

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10.3 Type of Losses


Actual total loss
Is a typical loss where the cargo is totally destroyed.
Constructive total loss
Is a commercial loss, the cargo insured is not totally destroyed but damage had
caused it to be commercially unacceptable for its intended purpose:

Actual loss appears inevitable

Too expensive to repair

Little salvage or may be done at all

Partial loss
This is an accidental partial loss of the cargo insured caused by a peril insured
against e.g. rusting, denting, shortage or contamination.
Duty of assured
The assured should act as if uninsured. The expenses must have been incurred
with a view to averting or minimizing a loss for which the underwriters would have
been liable, the loss which is being minimized or avert must be a loss by an insured
perils.
Salvage
Salvage sales of damaged cargo is a step taken to mitigate loss. As such, it is
important that this aspect be given priority by the surveyor. The salvage exercise
must be conducted promptly and efficiently and every endeavor be made to obtain
the highest salvage value.
For example the prompt action is vital for perishable cargo or cargo which will
deteriorate if left in an unsuitable environment e.g. chocolate left in an open yard.

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There are also instances where it is not economical to salvage the damaged cargo:

Where the cost of transporting the cargo exceeds the salvaged valued of the
cargo

Where taxes payable on the cargo exceed the salvaged value of the cargo

Protection of the brand name

10.4 Basic claim procedures


Insured to do:
1. Notify the airline immediately and conduct survey
2. Inform the insurance company immediately when a claim arises such as
shortage and damages. Submit survey report.
3. Insurance company will appoint surveyors if necessary
4. Prepare the official claim bill (to be done by the consignees) on the loss suffered,
i.e. statement of claim
5. Write to the respective parties and await their respective replies (see No.9
below)
Documents required:
1. Official claim bill
2. Original insurance certificate /policy
3. Original airway bill / bill of lading / transport document
4. Copy of packing list
5. Commercial Invoice
6. Customs declaration form
7. Copy of suppliers invoice
8. Inward / outward survey report
9. Agents tally sheets
10. Copies of correspondence exchanged with carriers / shipping agent / forwarding
agent / port authority and their respective replies

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11 Glossary of shipping terms


ABC Air Cargo Guide (ABC) : Monthly publication of cargo schedules, rates, and
other related information.
Accessories : When used in specific commodity rate descriptions, accessories
mean any additional objects which are nevertheless are intended for use with it but
neither essential to the normal use of the main article nor form an integral part of
that article.
Add-on : A term equivalent to proportional, arbitrary or construction rate.
Advance arrangement : Means the shipper must contact the carrier prior to
tendering the consignment.
Advanced Charge : see Disbursements
Agent : A person or organisation authorised to act for or on behalf of another person
or organisation.
Air Freight Forwarder : see consolidator
Air Waybill (AWB) : Also an air consignment note. Contract between shipper and
carrier(s) for carriage of goods over carrier's routes
Air Waybill, Neutral : A standard AWB without identification of issuing carrier in any
form.
Ancillary equipment : Equipment used to build up a palletised load or to move a
unit load device outside an aircraft.
Apron : A defined area of an airport intended to accommodate aircraft for purpose of
loading or unloading passengers or cargo, refuelling, parking or maintenance.
Arbitrary : A term equivalent to proportional, add-on or construction rate.
Assembly, Cargo : see Cargo Assembly
Baggage, Unaccompanied : Baggage carried as cargo
Billing Participant : An IATA Member or any other entity, being neither a CASS
airline nor a Part-Participant, which submits to the Settlement Offices AWB data in
an electronically readable form in respect of transactions made on its behalf by
agents.
Bonded Warehouse : A warehouse where goods may be stored for an indefinite
period without being subject to import duties.
Break Bulk : Disassembling of consolidated shipment for delivery or reconsignment
of a shipment.
Break Bulk Agent : An agent who breaks consolidations into their individual parts.
Break-even weight : The weight at which it is cheaper to charge the lower rate for
the next higher weightbreak multipled by the minimum weight indicated, than to
charge the higher rate for the actual weight of the shipment.
Bulk Cargo : Loose cargo not loaded on a pallet or in a container (ULD).
Cabotage : Applying to traffic originating at a point in one country and destined to
another point within the territory of the same country.
Cargo : Goods for carriage in an aircraft.
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Cargo Assembly : The separate reception of parcels or packages and the holding
of them for later dispatch as one consignment.
Cargo Aircraft : Any aircraft, other than a passenger aircraft, which is carrying
goods or property.
Cargo Charges Correction Advice (CCA) : A document sent by the accounting
department of a carrier to the accounting department of another carrier, notifying
them of additional charges incurred for collection from the shipper or consignee.
Cargo Compartment (Cargo Hold) : The lower holds fore and aft in the belly of an
aircraft below the passenger deck, used for cargo.
Cargo Disassembly : The separation of one or more of the component parts of a
consignment for any purpose other than that of presenting such part or parts to
customs authorities at their specific request.
Cargo IMP - Cargo Interchange Message Procedures : ATA/IATA Cargo
Interchange Message Procedures, developed by the Member Airlines of the Air
Transport Association of America and the International Air Transport Association.
Cargo, Transfer : Cargo arriving at a point by one carrier and continuing by another
carrier.
Cargo, Transit : Cargo arriving at a point and continuing on the same flight.
Charge : An amount to be paid for the carriage of goods or incidental services
connected with such carriage.
Charges Collect : Also Freight Collect or Charges Forward. Charges entered on the
Air Waybill for collection from the consignee.
Charge, Minimum : The lowest amount to be charged for a consignment between
two points, regardless of weight or volume.
Charges Prepaid : Charges entered on the Air Waybill for payment by the shipper.
Charges, Published : A charge, which is specified in the carriers, rates tariff.
Charge, Through : Total charge from origin to destination.
Charter : An aircraft or flight operating under a charter contract.
Charter Contract : Also Charter Party. An agreement where a carrier places the
entire capacity of an aircraft at a shipper's disposal.
Charterer : The person who has signed a charter contract with a carrier.
Commercial Invoice : An invoice for goods, which are the subject of a commercial
transaction.
Compartment : A further defined section of a belly-hold.
Conditions of Carriage : Terms and conditions published by a carrier with respect
to its carriage.
Conditions of Contract : Terms and conditions shown on the Air Waybill.
Consignee : The person whose name appears on the Air Waybill to whom the
carrier delivers the goods.
Consignment : Also Shipment. Goods received by a carrier from one shipper and
moved on the Air Waybill to one consignee at one destination.
Consignor : see Shipper
Consolidated Shipment : A shipment resulting from consolidation.

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Consolidation : Also Airfreight Forwarding/Groupage. Several individual


consignments grouped together and covered by separate House Air Waybills issued
by the forwarder for each individual consignment.
Consolidator : Also Airfreight Forwarder. A person or company acting for its
customer as a forwarding agent (or in the USA as an indirect carrier) performs
consolidation of consignments in its own name. A person delivering directly or
indirectly air freight to carriers in the form of one consignment which is made up of
more than one shipment from more than one shipper. This results in lower rates for
each single consignment being sent as part of a consolidation rather than as a
single shipment.
Container : see Unit Load Device
Convention on International Civil Aviation (Chicago Convention) : Conference
held in Chicago in 1994 which drew up a convention dealing with subjects of vital
importance for international civil aviation such as :
flying over territory of contracting states (air services, customs, rules of the air,
spread of disease, charge discrimination, etc.)
nationality of aircraft
Facilitation (customs, accident investigation, etc.)
documents (recognition of certificates and licenses, etc.)
international standards and practices
statistics, finance, technical assistance, etc.
founding of ICAO (International Civil Aviation Organisation)
Customs Clearance : Customs formalities to be completed at origin, in transit and
at destination.
Customs Entry : Customs declaration form to be used for customs clearance.
Damage : Harm done to goods during transportation that impairs their value or
usefulness.
Dangerous Goods : Also Restricted Articles/Hazardous Goods. Any article defined
in the IATA Dangerous Goods Regulations which is considered hazardous material
needing special handling when carried by air.
Dangerous Goods Regulations : Regulations listing all dangerous goods and
giving detailed instructions regarding packing and handling of these materials.
Declared Value for Carriage : Value of goods declared by the shipper to the carrier
for determining charges or establishing carriers liability.
Deconsolidation (Breakbulk) : Breaking down one shipment into multiple
shipments and distributing from a centralised location.
Delivery Order : Authorisation to deliver the consignment to a party other than the
consignee shown on the Air Waybill.
Delivery Receipt : A receipt signed by the consignee as proof that the goods have
been delivered to him.
Density : Relationship of weight to volume i.e. lbs. per cuft. or kg per cm3
Demurrage : Fee levied for the use of ULDs during loading or unloading beyond the
48 hours free period.
Density : Relationship of weight to volume I.e. 1lbs per cuft. or kg per cm3

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Destination : The ultimate stopping place of the goods according to the contract of
carriage.
Dimensions : Also measurements. The length, width and height measured in
centimetres or inches used to assess applicable rates.
Diplomatic Bag : A sealed envelope or bag moving between a government and its
accredited representative abroad, supported by a 'Bordereau' which has been
officially endorsed to indicate that the envelope or bag, contains only official
correspondence, for which special security measures are required.
Disbursements : A charge paid by a carrier or to an agent to another carrier, which
delivering carrier then collects from consignee. Such charges are usually for agent's
forwarding fees and incidental expenses paid by an agent or other carrier for the
account of the shipment.
Dolly : A platform type vehicle equipped with rollers used to accept, discharge and
handle ULDs on the ground.
Duty : A tax imposed on imports to collect additional revenue on goods entering the
country.
Export : To send or transport goods out of a country
Embargo : Refusal by carrier for a limited period to accept goods for transportation.
FIATA : Abbreviation for International Federation of Freight Forwarders Associations
First carrier : The carrier who actually performs the first part of the air
transportation.
Forwarder : An agent or company who performs services (such as receiving, transshipping or delivering) designed to assure and facilitate the passage of goods.
Freedom of the air : see Traffic Rights
Freight : Cargo, other than mail or baggage, I.e. usually commercial goods.
Freight Charge : A charge made for the carriage of freight in accordance with
currently effective tariffs.
French Gold Francs : Francs consisting of 65.5 milligrams of gold with a fineness
of nine hundred thousandths
Gateway : A service centre for consolidation and processing of import and export
shipments
Gross weight : The weight of the shipment including all packing, blocking, etc. Also
including weight of platforms, special bracing, etc., if required.
Ground Support Equipment : Vehicles or conveying systems, which handle cargo
on the ramp from the airside door of the terminal to the aircraft
Hague Protocol : Amendment to the Warsaw Convention, signed in Hague,
September 28,1995.
HAZ MAT : Hazardous Materials
High Density Cargo : Heavy weight for a given volume. Goods which weigh more
than 1kg per 6,000 m3 or 366 cu.in or more than 1lb per 177 cu.in.
High Loader : Vehicle with a loading platform able to load/unload ULDs to/from the
aircraft.

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House Air Waybill : A document issued by a consolidator for instruction to the


breakbulk agent. In some cases called Consolidator Air Bill or House Air Waybill.
IATA : Abbreviation for International Air Transport Association.
IATA Cargo Agent : An IATA approved agent, appointed and authorised by a carrier
to receive shipments, execute Air Waybills and collect charges.
IATA Clearing House : An institution founded by IATA in 1947, which settles claims
and accounts between IATA member airlines.
IATA Code : The three letters location code or IATA airport code.
ICAO : Abbreviation for International Civil Aviation Organisation with headquarters in
Montreal with aims and objectives to develop the principles and techniques of
international air navigation and to foster the planning and development of
international air transport.
Import : To send or transport goods into a country.
Interline agreement : A contract between two or more carriers to expedite
exchange of traffic between the parties to the agreement.
Intermodal : A container can carried by different modes of transport i.e. rail, truck,
sea and air.
Irregularity Report : A document sent by a participating carrier to the first carrier at
the airport of departure on discovery of an irregularity in its consignment or
documentation.
Invoice : An itemised list of goods shipped also specifying price and terms of sale.
Issuing Carrier : The carrier whose AWB is issued.
Joint Charge : A charge, which applies for carriage over the lines of two or more
carriers and which, is published as a single amount.
Joint Rate : A rate, which applies for carriage over the lines of two or more carriers
and which, is published as a single amount.
Kennel : Special Cage for transporting live animals such as dog
Label : A slip inscribed and affixed to a package for identification or description.
Letter of Credit : A letter addressed to a bank stipulating that a certain sum shall be
paid to the beneficiary named, under clearly stated conditions.
Liability : Responsibility i.e. for damage to or loss of cargo or for delayed delivery,
usually covered by insurance.
Live Animals Regulations (LAR) : IATA publication with regulations governing the
transportation of live animals.
Load : Goods put into an aircraft for carriage.
Loading Equipment : The equipment used to load and unload aircraft.
Load Plan : A document showing the weight of the aircraft, the weight of the load,
the description and distribution of the load and giving the balance of the aircraft.
Low Density Cargo : Low weight for a given volume. Goods which weigh less than
1kg per 6,000 m3 or 366 cu.in or less than 1lb per 166cu.in.

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Lower Deck : The compartment below the main deck, normally used with reference
to high capacity aircraft.
Main Deck : Primarily the passenger carrying level, also referred to as the upper
deck. In cargo carrying aircraft the compartment or cabin throughout the fuselage.
Mark : A symbol on packages used for identification or indication of ownership.
Master Air Waybill (MAWB) : An air waybill covering a consolidated shipment,
showing the consolidator as shipper.
Minimum Charge : The minimum amount, which applies for the transportation of
the consignment.
Miscellaneous Charge Order(MCO) : A document issued by a carrier or its agent,
in conjunction with a Passenger Ticket and Baggage Check and which may be used
only for payment of baggage shipped as cargo
Net weight : The weight of the goods, excluding all packing.
Normal General Cargo Rate : Means the under 45kgs. rate, or where no under
45kgs. rate exists, the under 100kgs. rate.
Notification of Arrival : A written notice sent by the delivering airfreight forwarder
Notification to Captain : A document issued by the loading station to inform the
captain of an aircraft of all special cargo to be loaded.
Origin : The starting place, i.e. place of manufacturer or beginning point of carriage
according to the contract of carriage.
Overpack : An enclosure used by a single shipper to contain one or more packages
and to form one handling unit for convenience of handling and stowage. Dangerous
Goods packages contained in the overpack must be properly packed, marked,
labelled, and in proper condition as required by the IATA Dangerous Goods
Regulations. (A Unit Load Device is not included in this definition.)
Over Pivot Rate : The rate per kg. to be charged for the Over Pivot Weight.
Over Pivot Weight : The weight in excess of the Pivot Weight.
Package(Non-Radioactive Material) : The complete product of the packing and
contents prepared for transport.
Packing : Any container or covering in which a shipment is packed
Palletise : To load onto pallets
Part Shipment : A shipment, which is not transported in total but in two or more
parts.
Payload : The revenue producing capacity of an aircraft
Perishable cargo : Goods, which will deteriorate over a given period of time or if,
exposed to adverse temperature, humidity, or other environmental conditions.
Pick and pack : From a centralised storage location, picking a customer-specified
bill of materials per order and preparing and packing for shipment.
Pivot Weight : Minimum chargeable ULD weight
Prefix : An airline identification number started before the serial number on an Air
Waybill. For example KE 180, LH 220, AF 057

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Proration : Division of joint revenue on an agreed basis between the carriers


concerned.
Quantity Charge : The unit rate, which is lower than the normal rate and applies to
shipments meeting specific weight requirements.
Quantity discount : A percentage reduction of a rate based on quantity.
Quarantine : A state of forced isolation, often to confirm that something is not
contaminated or infected, to ensure live animals being imported do not carry
disease.
Ramp : A parking place for aircraft usually near the terminal building.
Rate : The amount charged by the carrier for carriage of a unit of weight or volume
or value of goods.
Rate, General Cargo (GCR) : The rate for the carriage of cargo other than a class
rate or specific commodity rate.
Rate, Reduced(R) : Indication that a reduced class rate has been applied as used
Rate, Specific Commodity (SCR) : A classification of commodities to which specific
commodity rates apply.
Rate, Surcharged (S) : Rate classification indicating that a surcharged class rate
has been applied as used in the rate classification box of the Air Waybill.
Rate, Through : The total rate from point of departure to destination.
Refund : The repayment to the purchaser of all or a portion of a charge for unused
carriage.
Reservation : Also booking. Allotment in advance of space or weight capacity for
unused carriage.
Restraint System : A system in the floor of an aircraft for securing pallets or ULDs
Shipper : Also consignor or sender. The person whose name appears on the Air
Waybill as the party contracting with the carrier for carriage of the goods.
Shipment : see consignment
Shipper's Certificate for live animals/dangerous goods : A statement by the
shipper that his consignment is properly packed and described and is in proper
condition for carriage by air, according to the current edition of the IATA Regulations
and all applicable carrier and governmental regulations.
Shortage : A loss or reduction I.e. a loss in weight compared with the weight
originally stated on the Air Waybill or loss of part of a consignment upon delivery at
destination.
Short Shipped : Cargo included in a manifest but not loaded.
Tariff : The published rates, charges and/or related conditions of carriage of a
carrier.
The Air Cargo Tariff (TACT) : Publication of official airline tariffs, relus etc.
Terminal : Either end of a carrier line, e.g. airports are often referred to as terminals.

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Traffic Right : The rights of a carrier to operate from/to or between stipulated points,
also called Freedoms of the Air.
First Freedom : The right of an airline of a country (country 'A') to fly across the
territory of another country (country 'B') without lading :
A B >
Fly-Over
Second Freedom : The right of an airline of a country (country 'A') to land in the
territory of another country (country 'B') for non-traffic purposes, for instance, for
refuelling :
A B >
Technical Landing
Third Freedom : The right of an airline of a country (country 'A') to set down in
another country (country 'B') passengers, mail and cargo coming from the home
country of the airline (country 'A') :
A .> B
Pick-up
Set Down
Fourth Freedom : The right of an airline of a country (country 'A') to pick up in
another country (country 'B') passengers, mail and cargo destined for the home
country of the airline (country 'A') :
A <. B
Set Down
Pick up
Fifth Freedom : The right of an airline of a country (country 'A') to carry
passengers, mail and cargo from a point of origin in a foreign country (country
'B') to a point of destination in another foreign country (country 'C') :
A B > C
Pick up
Set Down
Sixth Freedom : A term sometimes applied to the type of Fifth Freedom traffic
carried from a point of origin in a foreign country (country 'C') to a point of
destination in another foreign country (country 'Z') via the home country of the
airline (country 'A') :
Z < A < C
Set Down Transit Pick up
Transfer Manifest : A list of cargo executed by the transferring carrier upon transfer
of interlines cargo and endorsed by the receiving carrier as a receipt for the
consignment transferred.
Trans-Shipment : Transfer of cargo from one aircraft to another.
Unaccompanied baggage : Baggage carried as cargo
Unitization : Consolidation of multiple packages into a registered ULD.
Unit Load Device (ULD) : The pallet and/or container in which goods can be
transported and which interfaces directly with aircraft loading and restarting
systems. As such it becomes a component part of the aircraft.
UN number : The four-digit number assigned by the United Nations Committee of
Experts on the Transport of Dangerous Goods to identify a substance or a particular
group of substances

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Valuable Cargo : A consignment with an actual value of USD 1,000 or more (or
equivalent) per kilogram. For example, gold, diamonds, legal bank notes, traveller's
cheques.
Valuation Charge : Charge per kg or 1b for the carriage of goods, based on the
declared value.
Vendor : Seller.
Very Important Cargo ( VIC ) : Freight requiring high priority handling.
Volume : Space occupied in cubic units i.e. length x width x height.
Volume Charge : A charge for the carriage of goods, based on their volume.
Vulnerable cargo : Goods for which no value is declared, but which obviously
require security handling; or shipments which are particularly vulnerable to theft or
pilferage
Warsaw Convention : An international agreement to standardise certain rules
relating to international carriage by air signed by various countries at Warsaw in
1992 and amended by the Hague Protocol in 1955.
Weight Charge : A charge for the carriage of goods based on their weight
Yield : It represents a unit revenue per ton-kilometer, and is calculated by dividing a
total revenue of a specific route by its flown ton-kilometer.
Zone Rate : The world is divided into a few geographic areas aimed at applying
same rates with certain respective zones as well as facilitating the air transport.
Such identical rates within each of certain categorised zones are called [zone rate].
This geographical division is not necessarily drawn by the distance covered, but by
the transport density and other conditions favourable to transport companies. Rates
for transports made to other regions beyond such a zone will be added up by the
relevant zone rate.

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