/ By tjchinafreight ivy / Shipping

Asian owners have larger fleets than Europe

Clarksons Research Services, in its latest weekly report, highlights how Asian shipowners are finally reinventing their European counterparts to become the dominant force in global shipping.

European owners have historically had the largest share of the global fleet, with 44% of gt at the turn of the century, and Asian owners 32%.
Led by rapid growth in China, Asian shipowners overtook Europe last year, and looking at global orders, the gap will widen in the coming years. According to a recent report by Clarksons Research, by the end of 2021, Asian shipowners currently have a market share of 43% (48,472 ships, 637 million gt) of world fleet capacity in terms of gross tonnage, surpassing that of European shipowners. 42% market share of fleet capacity (30,610 vessels, 630 million gt).

Over the past decade, Chinese shipowners have increased their fleet gross tonnage from 111 million to 226 million and are now the second largest shipowner of all countries with a 15% global share. shipping goods in China

Asian shipowners now account for 43% of global tonnage, with 48,472 vessels totalling 637 million tons, according to Clarkson. This exceeds the 42% share of European shipowners, comprising 30,610 vessels with a gross tonnage of 630 million.

“The tonnage shift from Europe to Asia looks set to continue for some time, with almost half of the global order book (79m GT, 49%) going to Asia Pacific owners compared to 33% (53m GT) for European owners,” Clarksons pointed out.

Asia dominates many other aspects of maritime, including ports, shipbuilding and crew supply.

In addition, Asia's growing market share in global trade is driving a large number of newbuilding investments in many Asian countries, which will eventually lead to a significant increase in fleet capacity share.

It is worth noting that despite the fact that countries in the region have experienced some of the strictest epidemic prevention and control restrictions in the past two years, with borders effectively closed for two years, the growth of the Asian fleet has remained very strong during the pandemic. s level.

Take the shipping industry as an example. After the outbreak, the container shipping market rebounded rapidly from the second half of 2020 after a brief downturn. Due to the supply chain congestion caused by the epidemic, there is an urgent need for a large number of container ships in the market. During this period, Asian container shipping companies ordered 236 ships, with a total capacity of 1.81 million TEU. And the pace of newbuilding orders is still showing no signs of slowing down.

With the exception of Greece, fleet growth in other European countries has been relatively sluggish, or even reversed. Taking Germany as an example, the combined capacity of German shipowners fell by 34% to 62 million gt during the same period.

Clarkson also said that this trend will continue to develop. Because the current market share of newbuildings owned by Asian shipowners also accounts for nearly half - 49% (79 million gt), it is worth mentioning that the total capacity of Chinese shipowners' newbuilding orders has reached 29 million gt, 18% of the world share.

However, the newbuilding order capacity of European shipowners is currently only 53 million gt, and the share is only 33%.

/ By tjchinafreight ivy / Shipping

Seaspan plans to expand investment in container ships.

 

In the past two years, the container shipping market has been hot. Although Seaspan, as the world's largest independent container ship owner, could have sat down and reveled in the high income, sufficient customers and long-term leases, due to the rapid development of the shipping industry, the The company still plans to expand its investment in container ships.

The Vancouver-based, Hong Kong-registered, Atlas Corporation-owned company has been growing at a record pace over the past year and a half. Its latest financial statements for 2021 confirmed that the company's cash flow was very solid, with a profit of $400 million in 2021, double the previous year. The leasing business added 70 newbuildings, or about 0.9 million TEU, and new contracts generated total cash flow of up to $12.9 billion.

Like the big liner companies, Seaspan is building a very strong capital pool. There is no doubt that investing in new projects is very easy for Seaspan. If a bank needs it to guarantee a loan, Seaspan can easily find a recent lease with a major liner company, which can last up to 18 years.

That said, Seaspan will still have an exceptionally strong funding position until 2040, even if the hot container market cools one day.

Seaspan and its shareholders want uninterrupted returns through continuous investment like a shipping company. Many large liner companies use their profits to invest in logistics assets. For example, Maersk bought LF, MSC bought Bolloré's African business, and CMA CGM bought Ceva.

But considering that the customers of these profiteers are now helpless to pay sky-high freight costs and endure long delays, in this case, shipping companies rely on their special tax incentives and use their high profits to acquire Another industry has exacerbated the negative sentiment in some parts of the supply chain market to a certain extent. Seaspan needs to study how to play a long-term "ship owner and operator" in the container shipping industry. business to best serve customers.

The issue has been discussed within the company for some time, but according to COO Torsten Pedersen, there is no final conclusion yet. But in general, the company aims to further strengthen its position in global value chains, including beyond 2025.

Ensuring a role in decarbonisation may be an option, but it may also be other activities, and opportunities abound in the chaotic container market.

“The industry is currently undergoing major changes, and the competitive environment is very different from a few years ago. Some links may be squeezed in the new structure, and there will be many strategic moves and counter-attacks in the industry. Huge market changes can provide many creative opportunities, we Think it's an exciting challenge."

"It's a good thing that Seaspan has a strong financial position" amid the boom in the container market, Pedersen said. Seaspan is currently achieving its stated goals. The company has struck deals with operators to build around 70 new ships over the next two or three years.

Concluding comments on the shipping industry, he said: "We have strong partners and long-term contracts, and our partner yards have a long history of shipbuilding. This is an industry that will be heavily funded in the next few years and the landscape is changing."

/ By tjchinafreight ivy / Shipping

Subtle changes in supply and demand, freight rates drop one after another

Supply and demand conditions improved, and freight rates continued to fall. There are many uncertain factors, and the future trend is still unclear.
Recently, the freight rates of major routes in the container shipping market have changed the pace of rising and have continued to decline in the past month. Even so, since the high freight rate in the fourth quarter of last year continued to the first quarter of this year, the current freight rate is still much higher than the same period last year.

Multi-route freight rates drop

According to Drewry data, as of March 17, the World Containerized Freight Index (WCI) was US$8,832.23/FEU, down 3.8% month-on-month and still up 79% compared with the same period in 2021.

In terms of routes, the Shanghai-Rotterdam spot freight rate was US$12,221/FEU, down 4% month-on-month; the Shanghai-Genoa spot freight rate was US$12,619/FEU, up 1% month-on-month; the Shanghai-Los Angeles spot freight rate was US$10,154 /FEU, down 7% month-on-month; Shanghai-New York spot freight rate was US$12,276/FEU, down 5% month-on-month.

On March 18, the China Export Container Freight Index (CCFI) released by the Shanghai Shipping Exchange was 3301.10 points, down 1.9% from the previous month. Among them, the freight index of European routes decreased by 1.9% month-on-month, the freight index of Mediterranean routes decreased by 0.5% month-on-month, the freight index of US-West routes decreased by 3.8% month-on-month, and the freight index of US-East routes increased by 2.1% month-on-month.

According to the Ningbo Export Container Freight Index (NCFI) released by the Ningbo Shipping Exchange, as of March 18, the composite index closed at 3,613.9 points, a month-on-month decline for 11 consecutive weeks, down 15.3% from the high level at the end of December 2021, and from the end of February. It fell 8.4%.

Judging from the situation of different routes since the end of February, the freight index of the South America east route decreased by 19.3%, the freight index of the South American west route decreased by 16.7%, the freight index of the Middle East route decreased by 17.6%, the India-Pakistan route decreased by 13.7%, and the freight index of the European route decreased by 13.7%. The price index fell 11.7%, the most significant decline. The average market price of the 40-foot TEU after the price increase in the Europe, South America East, South America West and America West routes fell by more than US$1,500/FEU, and the freight rate fell the most. It can be seen that, in the past month, although the freight rates of some routes remained flat or increased slightly month-on-month, in general, they showed a downward trend.

As far as the single-day freight rate is concerned, in early March, the freight rate trend showed a clear inflection point.

According to Xeneta data, recently, freight rates from China to Europe suffered the largest one-day drop since February 2020. On March 1, the average spot rate on the route fell by nearly $500/FEU to $13,340/FEU. This is the first time since September 2021 that freight rates on this route are below $13,500/FEU.

However, the agency also pointed out that the current freight rates on the Asia-Europe route are still at a very high level compared to before the COVID-19 outbreak. In 2018-2020, the average spot freight rate on this route was only US$1,500/FEU.

Based on this, Zheng Jingwen, a senior analyst at the International Shipping Research Institute of the Shanghai International Shipping Research Center, said in an interview with a reporter from China Shipping Weekly that according to the trend of previous years, the freight rate will indeed drop slightly and briefly in the first quarter.

Qian Hanglu, an industry analyst at Ningbo Shipping Exchange, also said: "This is mainly due to the traditional off-season, which makes the overall freight rate of the container shipping market continue to decline from mid-January to late March. For example, in 2019 In 2021 and 2021, the NCFI composite index has experienced a 10-week decline, with a cumulative decline of 25.7% and 19.4%, respectively."

/ By tjchinafreight ivy / Shipping

The container shipping market is in short supply, and the price of second-hand ships has skyrocketed

Since the outbreak of the epidemic, the supply and demand of the container shipping market has been unbalanced, and the freight rate has skyrocketed. Shipping companies that are "not worried about money" have bought and leased them. The amount of scrap is almost zero.

According to Alphaliner data, container lines have gone on a spree to acquire more than 500 container ships in the second-hand ship market in the past 18 months. Among them, Mediterranean Shipping was the largest buyer, purchasing a total of 169 second-hand ships with a total capacity of 636,900 TEU; followed by CMA CGM, which purchased 62 ships with a total capacity of 207,000 TEU. Maersk Line only ranked third, purchasing 27 ships of 141,600 TEU. The fourth is Wan Hai Shipping, which purchased 23 ships of 139,700 TEU.

ALphaliner pointed out that at the beginning of the market recovery, the price of second-hand ships was still at a low level, which made it a better choice for container shipping companies to buy and lease. At the same time, many small non-operating ship owners (NOO) are struggling on the brink of bankruptcy due to years of low rental income, and it is difficult to resist the high prices offered by container shipping companies.

Currently in the second-hand ship market, container ship prices have soared to record highs. The hot sale situation has also made the scrapping of container ships almost zero, and the capacity in the charter market has plummeted by 1.6 million TEU.

At the same time, orders for new container ships also hit a record high last year. Clarkson's data shows that in 2021, the order volume of container ships will reach 569 ships of 4.3 million TEU, and the contract value is as high as 42.8 billion US dollars. This order level is even 29% higher than the previous record level of 3.3 million TEU in 2007. 3.5 times the average order volume in the 10 years ending in 2020.

Since 2022, there have been 124 new orders in the container ship market, with a total capacity of about 857,600 TEU. It is estimated that the order volume of container ships will remain at a high level after 2022.

/ By tjchinafreight ivy / Shipping

South Korean shipbuilding industry returns to No. 1 after 7 years

With its strong performance in the field of LNG ships, the Korean shipbuilding industry has won half of the orders in the global newbuilding market.

According to data released by Clarkson on April 5, in the first quarter of this year, the global new ship order volume was 9.2 million revised gross tons (CGT), a decrease of 41% compared with the same period last year. Among them, South Korea undertook 4.57 million CGT, and the global The market share reached 49.7%, an increase of more than 12 percentage points from 37.2% in the first quarter of last year; China has undertaken 3.855 million CGT, and the global market share has dropped from 46% in the first quarter of last year to 41.9%; Japan has undertaken 248,400 CGT , the global market share fell to 2.7% from 12.8% in the same period last year.

This is the first time in the past seven years that a Korean shipping company has ranked first in the world in terms of orders received in the first quarter. At the same time, this is also the first time since Clarkson started statistics in 1996 that the number of orders received by South Korean shipping companies in the first quarter has reached about 50% of the global market share.

In addition, in March this year, the global order volume for new ships was 3.23 million CGT. The number of orders received by South Korean shipping companies also ranks first in the world in a single month, with a total of 1.64 million CGTs, accounting for 51% of the global share. Chinese shipbuilding companies ranked second with 1.36 million CGT orders, accounting for 42% of the global share.

As of the end of March, the number of global hand-held orders was 94.71 million CGT, an increase of 1.55 million CGT from the end of February. Among them, South Korean shipping companies have the largest increase in orders, reaching 1.12 million CGT; Chinese shipping companies have increased orders by 610,000 CGT, and Japanese orders have decreased by 240,000 CGT.

Industry insiders in South Korea said that last year, South Korea handed over the world's largest new ship order volume to China. In the first quarter of this year, the global new ship order transaction volume decreased significantly year-on-year, but South Korean shipbuilding companies worked hard and preemptively seized the place. The order finally overtook China to regain the first position. This is mainly due to the large number of LNG ship orders undertaken by South Korean shipbuilders. Regarding the reasons for the significant decrease in the number of orders received by Japanese shipbuilding companies, a Korean industry official explained that the data of the Japanese shipbuilding industry traditionally lags behind, so there may be changes in the future.

According to statistics, among the 38 large-scale LNG ships of 174,000 cubic meters or more ordered globally in the first quarter of this year, South Korea has undertaken 27 vessels, accounting for 71%; China has undertaken 11 vessels, accounting for 29%. In addition, a total of 44 container ships above 8000TEU have been ordered globally this year, of which South Korea has undertaken 21 ships, accounting for 47.7%.

A relevant person in the Korean industry said: "Although the number of new ship orders has decreased this year, Korean ship companies are benefiting from the booming LNG ship market. In the first quarter of this year, the number of LNG ships undertaken by Korean ship companies increased significantly, and the number of orders on hand It is also increasing, and the delivery time has been scheduled to the end of 2025. At present, European countries are looking for alternative sources of Russian energy, and the demand for LNG ships will continue in the future.”

/ By tjchinafreight ivy / Shipping

The epidemic will not bring down Shanghai Port and Ningbo Zhoushan Port

Recently, the epidemic prevention and control in Shanghai has been in a severe period, and the infection rate has continued to rise. Shanghai Port cannot survive alone, and is making every effort to coordinate resources from all parties to keep the port open. On the other hand, many truck drivers were diagnosed in Ningbo, and the local government immediately introduced a policy of one nucleic acid per day for truck drivers to further tighten the prevention and control policy. As the two largest ports in the world, Shanghai Port will complete a container throughput of 47.3 million TEU in 2021, and Ningbo Zhoushan Port will complete a cargo throughput of 31.08 million TEU. These two ports account for nearly 40% of the national port container throughput. In this regard, the normal operation of the two ports is related to the smooth global supply chain, and the sensitive market remains highly concerned about this.

Recently, a screenshot of densely crowded ships in the waters near Shanghai circulated on the Internet. The screenshot was accompanied by a caption saying, "Hundreds of ocean-going freighters have been stranded in the open seas of Shanghai, and the supply chain is broken here."

The impact of this round of Shanghai epidemic on international shipping has also aroused high public attention.

On April 2, SIPG also responded to the news of "severe congestion in Shanghai Port": "We have noticed that some media have published false reports on the serious congestion in Shanghai Port, which mentioned that 'Shanghai's port is delayed. The situation is getting more and more serious', 'the number of ships waiting to be loaded and unloaded in Shanghai port has soared to more than 300 this week' and other unverified remarks and pictures, according to the internal data monitoring of Shanghai port, since February, Shanghai port terminal production and operation As usual, there is no congestion of container ships." SIPG further stated that there is absolutely no "congestion comparable to the port congestion in West America" ​​in Shanghai Port. The number of waiting ships is in single digits, and the average number of waiting days is normal.

Previously, it was believed that due to the severe epidemic situation in Shanghai, the transportation of import and export goods was also affected, and some ships calling at Shanghai Port may be diverted to Ningbo Zhoushan Port or Nanjing Port.

On April 6, the "Daily Economic News" reporter asked the relevant person in charge of Ningbo Port (601018.SH) to verify the above situation. The person in charge responded: "The company is now doing a good job of epidemic prevention and control in accordance with the requirements of the superior and the actual situation of the enterprise to ensure the continuous, stable and healthy development of port production. As for the ships that previously berthed at Shanghai Port, they will be moved to Ningbo Zhoushan Port. The situation is not obvious at the moment and we are monitoring it.”

On the same day, a person in charge of a shipping agency in charge of Ningbo also told reporters that from what he knew, Shanghai's port calls are relatively normal, and there has not been a large number of changes to Ningbo port.

At the same time, Ningbo Zhoushan Port had to face the problem of epidemic spillover. From April 4th to 5th, 6 of the 7 cases found in Ningbo City were road freight-related drivers and express service area staff, and one of them was in Beilun District; as a model of anti-epidemic, Ningbo Zhoushan The port quickly made a decision to close some container shipping bases in Beilun District, and organized truck drivers to conduct nucleic acid tests every 24 hours. For example, Ningbo Meidong Container Terminal Co., Ltd. issued a notice on April 3 that truck drivers entering the port area. A free nucleic acid test needs to be completed immediately before entering the port area; at the same time, for foreign vehicles, Ningbo City requires drivers to actively cooperate with nucleic acid testing and antigen testing at the high-speed bayonet. In addition, Ningbo has implemented closed management of staff in the city's expressway service areas, strictly implemented daily nucleic acid testing measures, and suspended refueling operations.

At present, Ningbo Zhoushan Port is still in normal operation as a whole, and the warehouses that were temporarily closed due to the detection of tight connections will also be unsealed from tomorrow. In addition to Ningbo City, two freight drivers in Shaoxing City were also found to be infected with the new crown. The freight drivers and passengers outside the city are required to perform nucleic acid tests every two days on the basis of implementing nucleic acid tests every two days, and each time they return to Shaoxing Expressway.

The port circle (ID: gangkouquan) believes that if the impact of the epidemic expands, the impact of the collection and distribution problem continues to expand, and the ports in the Yangtze River Delta region cannot handle the problem of transportation route configuration, which will be a heavy blow to the global supply chain. of. On the premise of "preventing imports from outside and preventing exports from inside", Shanghai should increase the capacity of waterway barges as soon as possible to transfer the pressure of road collection and distribution, while Ningbo Zhoushan Port must learn lessons and give priority to preventing the spread of the epidemic. The two ports will not be dragged down as the outside world fears, but for a period of time in the future, whether it is the cargo owner, the shipping company, or the port, it will be under the pressure of repeated epidemics.

/ By tjchinafreight ivy / FBA

What is the difference between overseas warehouse and FBA?

  • FBA, or Fulfillment by Amazon, means that sellers send products sold on Amazon directly to local warehouses. When a customer places an order, the Amazon system automatically completes the delivery.
  • Overseas warehouses refer to storage facilities established overseas. Cross-border e-commerce enterprises export goods to overseas warehouses in batches according to general trade methods. Once the order is placed, the item is delivered to the consumer.

Advantages of overseas warehouses

Faster delivery. It effectively reduces order response time by 50-70% compared to shipping from China. Additionally, it improves user experience and greatly reduces product turnaround time.

Reduce logistics costs. Through centralized delivery to overseas warehouses, local express delivery in the United States can reduce delivery costs by 30-50%.

FBA inventory adjustment is easy. For sellers, the overseas warehouse is the buffer warehouse of Amazon FBA, which is convenient and flexible to adjust the FBA inventory.

Disadvantages of overseas warehouses

Pay storage fees. The use of overseas warehouses requires payment of a certain fee, which is generally charged on a daily basis. And the cost of warehousing in different countries is also different, and sellers need to calculate the cost by themselves.

In stock. The premise of entering overseas warehouses is that sellers need to have a certain amount of inventory, which means that they need to stock up in advance, which will bring the risk of slow sales. And not suitable for sellers who sell special customized products.

Cash flow is inconvenient. Due to the large amount of stocking to overseas warehouses, the capital investment in stocking, logistics, warehousing, etc. is large, which can easily lead to a breakdown in the capital chain.

Sellers have high requirements for warehouse management data monitoring. Sellers need to monitor the detailed data of incoming and outgoing shipments, as well as putting on and off the shelves, otherwise it will easily lead to loss of goods or data mismatch. Some Amazon sellers responded that the inventory quantity did not match the actual number of products sold. Since Amazon has a complete warehouse management system, third-party overseas warehouses cannot guarantee that there will be no problems.

In essence, there is no difference between overseas warehouses and FBA. Both provide sellers with comprehensive warehousing and fulfillment services. However, there are obvious differences between the two in terms of service content and form.

1. The difference between service providers: FBA is Amazon's official warehouse distribution service, and after-sales service is provided by Amazon; overseas warehouses are provided by third-party service providers, responsible for the warehousing and distribution of sellers' products.

2. Different service forms. Once the seller has sent the goods to FBA, there is no need to deal with shipping related issues. The whole process from sorting to shipping is completed by FBA. The overseas warehouse is divided into two parts, first sorting and packaging in the warehouse, and then entrusting the local express company to complete the delivery service.

3. The service content is different. The service content of FBA is relatively simple, that is, it simply helps sellers deliver goods. The service content of overseas warehouses is more abundant. In addition to basic warehouse distribution, it also provides related services such as labeling and labeling, single-piece delivery, transit replenishment, quality inspection, and front-end logistics. For example, worry-free overseas warehouses can also realize customized services according to customer requirements.

4. Overall price difference. Combining all services, FBA is more expensive, while the overall cost-effectiveness of overseas warehouses is higher.

Other differences

Choose:

Amazon FBA warehouse has certain restrictions on the size, weight and category of products, so the choice is biased towards small, high and high-quality products

DH overseas warehouses have a wider range of choices than FBA warehouses.

Product:

FBA does not provide assembly services, and requires sellers to affix the outer box label and product label before entering the warehouse. If the product label is found to be damaged, it will be returned for repair.

DH overseas warehouses will provide sorting and assembly services before products are put on the shelves.

/ By tjchinafreight ivy / Shipping

The difference between virtual overseas warehouse and overseas warehouse

Cross-border e-commerce and cross-border logistics coexist synergistically. Compared with the booming cross-border e-commerce in my country, the shortcomings of cross-border logistics are becoming more and more prominent, which restricts the development of cross-border e-commerce to a certain extent. In addition to using the domestic direct mail mode, traditional cross-border e-commerce can also use the overseas warehouse mode. The virtual overseas warehouse is a mode between domestic only delivery and overseas warehouse delivery.

Virtual Warehouse is an international logistics model that combines the advantages of physical overseas warehouses, and is more intended to make up for its shortcomings. By generating a tracking number in the destination country of the domestic (Shenzhen) system, the centralized goods are directly delivered by high-quality air. In the destination country, the electronic express pre-clearing method is adopted to shorten the delivery time of the express in the destination country.

Overseas warehouse mode

1. Headway transportation
Cross-border e-commerce transports goods to overseas warehouses by sea, air, land or intermodal.

2. Warehouse management
Through the warehouse management system, cross-border e-commerce merchants can effectively view overseas warehoused goods and manage inventory in real time.

3. Local delivery
According to the order information, the overseas warehouse center distributes the goods to customers by local post or express.

Disadvantages: need to stock up, there is inventory risk and increase capital cycle costs, it is inconvenient to operate multiple SKUs at the same time, increase inventory storage costs and operating costs, overseas national policy changes will cause certain losses and troubles

Virtual overseas warehouse mode

1. First of all, the virtual overseas warehouse model does not require sellers to stock up, there is no inventory risk, and there is no financial pressure;

2. The virtual overseas warehouse mode is equivalent to having local overseas warehouse inventory at all sites on any platform;

3. The virtual overseas warehouse model shows local delivery, which improves consumers' purchasing confidence and purchasing experience, increases sales, and increases profits. At the same time, it also prevents buyers from malicious returns and exchanges because the delivery address is displayed in China;

4. The overall logistics cost of the virtual overseas warehouse model will be similar to the local delivery price, but the timeliness will be much faster. After all, it is equivalent to taking a special line to the destination country by yourself;

5. The virtual overseas warehouse model can respond to changes in foreign policies at any time, operate flexibly, reduce risks, and is more suitable for small sellers who are not particularly well-funded. Details (dimensional: ues5588)

Disadvantages: At present, virtual overseas warehouses are not recognized on e-commerce platforms.

Suitable for the crowd: small amount of capital, weak risk tolerance.

/ By tjchinafreight ivy / International

Bank Guarantee vs. Letter of Credit

Bank guarantees are similar to letters of credit in that they both instill confidence in the transaction and the parties involved. The main difference, however, is that the letter of credit ensures that the transaction goes smoothly, while the bank guarantee reduces any losses that arise if the transaction does not go as planned.

Letter of Credit - Reduce Risk

A letter of credit is a financial institution's commitment to fulfill a buyer's financial obligation, thereby eliminating any risk that the buyer will not perform payment. Therefore, it is often used to reduce the risk of non-payment after delivery.

In addition, a letter of credit is issued to the buyer after the necessary due diligence has been carried out and sufficient collateral has been collected to cover the secured amount. The letter is then submitted to the seller as proof of the buyer's credit quality.

Types of Letters of Credit

Just like bank guarantees, letters of credit vary according to need. Here are some of the most commonly used letters of credit:

  • An irrevocable letter of credit ensures that the buyer is obligated to the seller.
  • The confirmed letter of credit is from the second bank, which guarantees the letter of credit when the credit of the first bank is in question. If the company or the issuing bank fails to meet its obligations, the confirming bank will ensure payment.
  • An import letter of credit allows importers to make immediate payments by giving them a short-term cash advance.
  • An export letter of credit lets the buyer's bank know that it must pay the seller, provided that all the conditions of the contract are met.
  • A revolving letter of credit allows customers to make withdrawals within a certain range within a certain period of time.

Bank Guarantee – Failure to perform contractual obligations

Bank guarantees help companies mitigate any risk arising from both sides of a transaction and play an important role in facilitating high-value transactions. The agreed-upon amount is called the guaranteed amount and will always benefit the beneficiary.

In venture capital, both parties are obligated to perform certain duties in order to successfully complete a transaction, and both parties often use bank guarantees as a way to demonstrate their creditworthiness and financial standing.

Also, if one party fails, the other party can invoke the bank guarantee and get the guaranteed amount by filing a claim with the lender. Unlike a LOC, a bank guarantee protects the parties involved.

Types of Bank Guarantees

Bank guarantees are just like any other type of financial instrument - they can take a variety of different forms. For example, banks provide direct guarantees in both domestic and foreign operations. Indirect guarantees are usually issued when the subject of the guarantee is a government agency or other public entity.

The most common types of guarantees include:

  • Shipping Guarantee: This guarantee is provided to the carrier for shipments that arrive before any documentation has been received.
  • Loan Guarantee: An institution that issues a loan guarantee promises to assume financial obligations in the event of a borrower default.
  • Advance Payment Guarantee: This guarantee is used to support the performance of the contract. Basically, this security is a form of security to repay the advance payment if the seller does not deliver the goods specified in the contract.
  • Confirmed Payment Guarantee: With this irrevocable obligation, the bank pays the beneficiary a specific amount on behalf of the customer by a specific date.

Summary: What is the difference between a bank guarantee and a letter of credit?

Letter of Credit (LC)
A letter of credit is a promise by a bank to pay the beneficiary after certain conditions are met.
Often used by merchants engaged in the import and export of goods.
Protects both sides of the transaction, but benefits the exporter.
Example: A letter of credit can be used to transport goods or complete services.

Bank Guarantees (BGs)
A bank guarantee is a promise by the bank to pay the beneficiary in the event that the counterparty does not fulfill its contractual obligations.
Typically used by contractors to bid on large projects, such as infrastructure projects.
Protects both parties to the transaction, but benefits the beneficiary (usually the importer).
Example: A bank guarantee is used when a buyer buys an item from a seller, then the seller is in financial difficulty and cannot pay.

/ By tjchinafreight ivy / Shipping

FOB Shipping Point vs. FOB Destination

Container ship in the harbor in Asia 

International business terms (incoterms) were designed by the International Chamber of Commerce (ICC) to simplify international trade by creating a common standard language, a globally recognized list of terms related to the international transport and transport of goods.
Importers and exporters need to be proficient and proficient in many terms. Some terms are more common than others, such as Free On Board (FOB), Free Carrier (FCA) and Ex Works (EXW). FOB, while common, is largely misunderstood.
Although their language is largely drafted in legal language, it is the responsibility of all parties involved in a shipment to ensure that they understand all Incoterms, otherwise a simple shipment can turn into a costly accident .

Incoterms are important for several reasons. If you find yourself wondering what FOB means in shipping, be sure to take the time to understand FOB shipping

Free shipping on board

The FOB point of dispatch, also known as the FOB origin, is when title and responsibility for the goods pass from the seller to the buyer when the goods are placed on the delivery vehicle.
Since the FOB shipping point transfers title to the shipment of the goods when they are placed at the shipping point, legal title to those goods passes to the buyer. Therefore, the seller is not responsible for the goods during delivery. FOB Shipping Point is a further limitation or condition of FOB as liability changes hands at the seller's shipping terminal.

For example, suppose that ABC Company in the United States purchases electronic equipment from its supplier in China, and the company has a FOB point-of-ship agreement. If the nominated carrier damages the package during delivery, ABC Company will be solely responsible and cannot claim compensation from the supplier for the loss or damage. Suppliers are solely responsible for bringing electronic equipment to the carrier.

Free destinations on board

Conversely, for FOB destinations, title transfers at the buyer's loading dock, PO box, or office building. Title to the goods passes from the seller to the buyer once the goods have been delivered to the place designated by the buyer. Therefore, the seller legally owns the goods and is responsible for the goods in transit.

Types of free destinations on board

  • FOB freight prepaid and allows the named seller to be obligated to pay the freight and have the goods in transit. The seller bears the risk of loss of or damage to the goods in transit. Title to the goods passes to the buyer at the buyer's place of business.
  • FOB shipping prepaid and adding the specified seller is obligated to pay shipping. However, the seller charges the buyer for shipping. The seller bears the risk of loss of or damage to the goods in transit because the seller owns the goods in transit. Title to the goods transfers to the buyer's place of business.
  • FOB freight collect specifies that the buyer must pay the freight upon receipt of the goods. However, the seller bears the risks associated with shipping the goods because the seller still owns the goods during the shipping process.
  • FOB freight collect specifies that the buyer must pay the freight. However, the buyer deducts the fee from the seller's invoice. The seller is responsible for the goods because the seller still owns the goods during shipping.

Main difference

Another key difference between the two terms is how they are calculated. Since the buyer is liable after the goods are shipped, the company can record an increase in its inventory at this time. Likewise, the seller records the sale at the same time. If the goods are damaged or lost in transit, the buyer can file a claim as the company holds title during delivery.

The accounting rules for FOB destinations have changed. In this case, the seller completes the sale on its records once the goods arrive at the receiving dock. That's when the buyer records the increase in their inventory.

There are also differences in the division of costs. For the FOB shipping point option, the seller bears the shipping costs and charges until the goods arrive at the port of origin.

Once the goods are loaded on the ship, the buyer is responsible for all costs associated with shipping, as well as customs, taxes and other charges. For FOB destinations, the seller bears all costs and expenses until the goods arrive at the destination. Once in port, all costs - including duties, taxes and other charges - are borne by the buyer.