Liner Terms: understanding shipping companies' rate offers

August 19 2020

Upply takes you into the technical side of container shipping with this update on liner terms. This week, we look at the different options proposed by the shipping companies before discussing next week the relationship between liner terms and incoterms®, which are together essential to international trade.

To begin this examination of liner terms, which is to say, basically, shipping companies' general conditions of sale, we need to recall a certain number of things.

  • Liner Terms set out a shipping company's rate offer, essentially detailing the share-out of loading and unloading costs between shippers/end clients and the company. They shape the bill of lading (BL) by indicating which charges are included and which are excluded.
  • Incoterms® are the international rules setting out the terms of sale between buyer and seller which are published by the International Chamber of Commerce. These rules set out the way that costs and risks are distributed among the parties to a commercial, contract by indicating precisely where they are to be found. We studied them in detail in our article marking publication of the new ICC 2020 edition.

The bill of lading is established as a direct consequence of the commercial contract and not the opposite. The bill of lading, in the area it covers, contributes to the execution of the commercial contract. Good practice involves seeking maximum cohesion between liner terms and incoterms® in preparing an international commercial operation. This cohesion is not obligatory since it is not an obstacle to realisation of the operation. On the other hand, it avoids having to resort to rebilling after the event for local costs incurred by one of the two contracting parties (buyer and seller).

The main liner terms

CY: Container Yard. This term, which designates the place at the port where the container is received or delivered, can, depending on the situation, refer to a depot, a container park or a port terminal. The CY is not necessarily situated in a port. It can, for example, designate the place where an empty container is picked up at an inland facility. When making transport arrangements, one needs to specify whether the handling of the container in the designated depot is included in the service proposed by the shipping company or not.

Ramp: It designates the price of transport to a given point, including the loading or unloading of the wagon. It is a classic term in container transport in the United States, most particularly for container rail junctions in Chicago. It should be noted that this term does not include the reloading or unloading on to a road transport unit for local delivery.

Gate In: The full container, sealed and loaded on a transport unit (road, rail, inland waterway) is taken over by the port cargo-handler on behalf of the shipping company at the entry gate of the departure port terminal. A Gate In price in shipping terms indicates explicitly that the terminal handling charge loading (THCL) is included in the freight rate.

Gate Out: The full container, sealed and loaded on to a means of transport of evacuation is covered up to the exit point of the terminal of the port of arrival of the goods. As for Gate In, a Gate Out freight rate includes the terminal handling charge discharge (THCD).

Free In: The transport price proposed covers the service offered by the company once the container is aboard ship, stowed and lashed, at the port of departure. A Free In at Departure freight rate does not include THCL.

Free Out. Contrary to Free In, Free Out indicates that the price of transport covers the merchandise only so long as it is aboard ship at the agreed port of destination. The merchandise is stowed but not unloaded from the ship. The term Free Out naturally excludes THCD, which is therefore not include in the freight rate proposed by the shipping company.

Under Hook/Under Tackle: We do not need to spend much time on these old-fashioned liner terms, which have been inherited from the conventional general cargo sector and are rarely employed for containers. They indicated that only a part of the cargo-handling, often defined in a fairly elastic manner, was included in the freight rate. The general use of Terminal Handling Charges (THC), which are indivisible, in all the world's major container ports, has led to the virtual disappearance of these liner terms.

Combinations of liner terms

To understand the freight rate proposed by a shipping company, it is primordial to concentrate on the two liner terms used between departure and arrival. Several combinations are possible.

Gate In/Gate Out: freight and the usual surcharges are included in the rate, as are terminal handling charges at the port of departure and the port of arrival. When you use Upply's Compare and Analyze application to check out a port to port freight rate, this is the kind of rate which is used. It is a rate which common for goods leaving Europe for the United States. It is widely and frequently used and requested by the major multinational groups which have close bilateral links with the major shipping companies.

Gate In/Free Out: The freight and usual surcharges are included in the proposed rate, as is cargo-handling prior to departure (THCL). On the other hand, the cargo-handling at the port of arrival (THCD) is not included. This combination is commonly used for goods leaving Europe for Asia.

Free In/Free Out: The proposed rate covers the shipping costs and surcharges (except exceptional surcharges) but excludes cargo-handling at the ports of departure and arrival (THCL and THCD).

Free In/Gate Out: The usual freight and surcharges are included in the shipping company's proposed price, as is cargo-handling at the port of arrival (THCL).

Some examples to illustrate the points to watch out for

  • Free in Tokyo/Gennevilliers CY

This example can be interpreted in the following fashion: the proposed rate includes all services carried out from the moment the container is loaded and lashed aboard ship at the port of Tokyo until its discharge on to the quay at the river port of Gennevilliers (Paris) after having first passed through French sea port of Le Havre. Implicitly, the reloading of the container on to a lorry for the "final kilometre" is not included in the service even if it only means moving it to a warehouse close to Gennevilliers.

  • Gate In Le Havre/Chicago Ramp

This rate would include all transport costs and expenses from reception on the means of transport bringing the goods to the designated port terminal at Le Havre to the rail container terminal in Chicago, including the unloading of the container from the rail wagon. Again, the cargo-handling involved in reloading the merchandise on to the road transport unit to take it from the rail terminal is not included in this rate proposal.

After this first outline of the liner terms universe, we will look next week at their relationship with commercial contracts.

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Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).

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