Transshipment

Transshipment is the unloading of goods from one ship, aircraft, truck or train and reloading them onto another during carriage from the place of loading to the final destination. It is routine in modern shipping, where large vessels call at hub ports and smaller feeder ships carry containers on to secondary ports. In letter of credit practice, transshipment has a specific meaning under UCP 600, and a credit may permit or prohibit it.

The term has a second use in trade policy and customs. There, transshipment describes goods routed through an intermediate country, sometimes legitimately and sometimes to disguise their origin, evade duties or get around sanctions. The two meanings overlap but are not the same, and banks dealing with trade documents need to understand both. Transshipment is different from partial shipment, which concerns splitting a consignment into several lots.

Think of a long train journey with a change at a big station: you get off one train and onto another, but you are still on the same trip with the same ticket. Transshipment is that change for cargo. A container might leave Karachi on a small ship, be lifted onto a much larger ship at a hub port, and travel on to Rotterdam.

Each change adds a moment where goods can be delayed, damaged or lost, which is why some buyers once insisted on direct sailings. Today most container cargo changes ships somewhere, so banks and buyers are usually more concerned that one transport document covers the whole journey. Customs officers ask a different question: whether the stop was just a change of ship, or a way of making goods look as if they came from somewhere else.

UCP 600 defines transshipment separately for each transport document. For a bill of lading (Article 20), it means unloading from one vessel and reloading onto another vessel between the port of loading and the port of discharge stated in the credit. For a multimodal or combined transport document (Article 19), it means unloading from one means of conveyance and reloading onto another, whether or not in a different mode of transport, during carriage between the places stated in the credit.

Two rules give banks and shippers room:

• A transport document may indicate that goods will or may be transshipped, provided the entire carriage is covered by one and the same document.
• Even if the credit prohibits transshipment, a bill of lading showing that transshipment will or may take place is acceptable if the goods are shipped in a container, trailer or LASH barge, as shown on the document. For multimodal documents, transshipment is acceptable even when prohibited.

Because nearly all general cargo moves in containers, a prohibition on transshipment has little effect on container shipments. It still matters for bulk cargo such as grain, ore and oil, where reloading at a transit port is uncommon and may expose the goods to loss. Similar rules apply to air, road and rail documents.

Hub ports such as Singapore, Colombo, Dubai's Jebel Ali and Rotterdam handle large volumes of transshipment cargo that never formally enters the local market. Customs authorities generally treat goods that remain under customs control in transit as not imported, and rules of origin in trade agreements usually say that origin is not changed by unloading, reloading or other operations needed to keep goods in good condition.

The abuse is "illegal transshipment": relabelling or lightly processing goods in a third country so they appear to originate there, to avoid tariffs, quotas or anti-dumping duties. US Customs and Border Protection and other authorities pursue such cases as customs fraud. Transshipment through third countries is also a known method of sanctions evasion, where goods bound for a sanctioned destination are shipped first to a neighbouring hub.

For a credit, the beneficiary checks whether transshipment is allowed and whether the transport document will cover the whole journey; if not, it should ask for a documentary credit amendment before shipping. Its freight forwarder can confirm the routing and the type of document the carrier will issue. Buyers who are worried about damage often rely on insurance rather than a prohibition.

For compliance, banks review transport documents and vessel data as part of trade-payment compliance. Signs they look for include routings that make no commercial sense, transshipment at ports close to sanctioned countries, vessels that switch off tracking signals, and goods whose described origin does not fit the route. These reviews feed into sanctions screening and the detection of trade-based money laundering. The growth of containerization made transshipment efficient, but it also made tracing the true route of goods harder.

• International Chamber of Commerce
• World Customs Organization