In the world of shipping, there is a distinct difference between ‘direct shipping’ and ‘transhipment’. Each method has its own advantages and disadvantages, and there are many factors to take into account before deciding which method is best for your business.
Below, we’ll explain the nature and the benefits of the two different types of shipping, and give some guidance as to what method you should choose when importing your goods from overseas.
What is a direct shipment?
A direct shipment refers to shipping from the beginning destination to an end destination via a direct route.
There is no need for a vessel to stop at an intermediate port to offload. The goods travel directly from Port of Origin to Port of Destination.
What is a transhipment?
Transhipment refers to shipping goods to an intermediate destination prior to the goods being shipped to their end destination. Containers may be carried by vessel into a port, but then offloaded from the vessel by a stevedore. At this point, the container(s) can then be transferred to a completely different vessel. For example, your business might be importing a large amount of coffee from Brazil, but the vessel may need to stop at a port in Asia, prior to completing the final stage of the journey to Australia.
It’s much like when you are travelling as a passenger on a plane to another country, but you need to catch a connecting flight. You might, for example, be travelling to London from Sydney, but you need to land in Abu Dhabi first in order to catch a connecting flight that will take you directly to London. There are several ‘legs’ of the journey, and this is essentially how a transhipment operates in the shipping industry.
Transhipments usually must occur when there is no direct shipment (explained above) to a final destination.
What are the benefits of direct shipping over transhipments?
There are numerous advantages of selecting direct shipping over transhipments, including:
Just like flying as a passenger on a commercial aeroplane, direct shipping means reduced transit time, as there is no requirement to offload at an intermediate location.
By way of example, if cargo is transported from India to the East Coast of the United States via a direct route, the transit time could be around 24 days. But if the goods are carried as a transhipment and transported between two cities in India (such as from Chennai to New Delhi), and then required to wait for another vessel prior to being taken to the United States, transit time could take up to 30 days.
When shipping cargo using the transhipment method, you will find you are more exposed to risks of delay. This is typical because it takes additional time to offload a container and then place it onto another vessel. If a port is congested during a given period (such as during shipping peak season), there could be delays in receiving and unloading vessels at the port.
There is also a risk that a vessel will miss a cut-off time at a transhipment port. If the first vessel arrives too late to meet its offload schedule, further delays will occur.
Case study: Congestion in Singapore
As will be further discussed below, Singapore is often cited as the world’s largest transhipment port. Due to its popularity, around 100,000 ships pass through the Singapore Strait every year. Unfortunately, due to heavy congestion and delays, it’s been considered cheaper for shipping companies to anchor in the middle of the strait rather than dock at the port. Waiting to enter into a dock creates huge lines of ships that can wait a few days, and sometimes even months, to reach an available berth.
Although rare, congestion has also unfortunately led to collisions. The most striking was a collision in August 2017 between a U.S. warship and a Liberian-flagged oil tanker which killed ten American sailors. Collisions occur often because the Singapore Strait by nature is very narrow with very tight channels.
Direct shipment avoids the potential for such instances.
When should I use transhipment to transport my cargo?
Your freight forwarder should provide you with options for shipping your cargo that are tailored to your specific circumstances.
If your cargo needs to be delivered urgently, you should always look for direct shipment options to avoid any delays at transhipment ports. However, while direct shipment does offer the important benefits we’ve outlined above, direct shipments won’t always be an option.
The reasons for using transhipment rather than direct shipping include:
A more affordable option
In some circumstances, direct shipping will cost more than transhipments. This is simply because direct shipments are generally in higher demand than transhipments, leading to increased pricing. It’s important to speak to your freight forwarder who will be able to offer you a choice of services where you can compare cost differences.
Lack of direct route available
Sometimes the transhipment method will need to be used because of the lack of direct routes available. Direct routes may be unavailable if the destinations are far apart. Below are some of Australia’s main trading lanes where no direct options are available:
- Shekou and Shanghai to Fremantle – There are unfortunately no direct services along this route. All cargo is transhipped via Port Klang, Malaysia or Singapore (these ports are explained in detail below). This is especially problematic during peak shipping season (September to December) when delays can frequently occur.
- London to Sydney – Most services from Europe will not directly ship to Australia. Once again, they are typically transhipped in Port Klang or Singapore prior to their arrival in Australia.
- Hamburg to Brisbane – There is no direct shipment along this route either and, once again, transhipment will occur at either Singapore or Port Klang. Transit time averages 45 days.
Efficiency when transporting in large vessels
Larger vessels that carry significantly more containers and cargo than smaller vessels sometimes cannot berth at small ports. In these circumstances, transhipment is the most effective way of shipping as your cargo can be placed onto a smaller vessel to reach the final destination.
Reduced cargo customisation costs
Transhipment can be a cost-saver in circumstances where cargo needs to be customised to meet certain local requirements (such as packaging requirements). This can be achieved in an intermediate port such as Port Klang where the cost of doing so tends to be cheaper.
Avoid tariffs and import duties
Transhipment may be a useful way to avoid paying certain tariffs and import duties. China has been criticised by former U.S. President Donald Trump for avoiding tariffs when exporting Chinese steel into the U.S. through transhipment via other Asian countries such as Vietnam, Malaysia and the Philippines. It is alleged that China has exported steel to other countries for simple processing (like relabelling) and then importing those same goods into the U.S. as if those goods originated from that third country.
What different documents are required if the shipment is not direct but transhipment ?
The same documentation is required for both transhipments and direct shipments. You only need to provide the documentation required by the destination country, whether your shipment is a transhipment or not.
If you want to know what is the basic documentation needed, please check our article The 5 Shipping Documents You Need For Import or Export.
Singapore and Port Klang: Australia’s most important transhipment ports
When importing goods into Australia on a route that tranships, goods will likely stopover at Singapore or Port Klang, Malaysia prior to arriving at your final destination port.
Singapore: the world’s largest transhipment hub
Singapore has always been a shipping nation and has often been cited as the largest transhipment port in the world. Back in 1819, a British colonial agent wrote that the “Port of Singapore is a free port, and the trade thereof is open to ships and vessels of every nation, equally and alike to all”. In January 2019, this became certainly the case when Singapore port operator PSA entered into a joint venture agreement with the Japanese shipping line Ocean Network Express (ONE). This ensured that the three major shipping alliances (accounting for about 75 per cent of container shipping trade) were drawn to Singapore.
In 2019, the port of Singapore handled a record 37.2 million Twenty-foot Equivalent Units (TEU) – a common measure of shipment volume. This was a 1.6% increase from 36.6 million in 2018, which itself was an 8.7% compared to 2017. Singapore proves to be the second busiest port internationally (following Shanghai) but is certainly the world’s top transhipment port.
Port Klang: Malaysia’s transhipment gem
From January to November 2019, Port Klang’s container handling volume grew by 10.7%, handling nearly 12.32 million TEUs. The level of transhipments also grew by 13.9%. In December 2019, it was further reported that Port Klang would focus on increasing port capacity due to increasing domestic and international demand; a ‘Westports phase II’ plan beginning in 2020 and is expected to be completed in 2045.
Although, it has been reported that Port Klang will experience a downturn as many shipping companies (including the large three shipping alliances) have entered into agreements with Singapore.
One Last Tip: Transhipment vs transloading
The term ‘transhipment’ is often mistaken for ‘transloading’ and vice versa, which are two separate concepts.
Transloading occurs when the mode of transport changes from, for example, a truck to a ship. When cargo is offloaded from a truck and loaded onto a ship, the cargo is being ‘transloaded’. It is still, however, considered a single shipment, unlike transhipment where cargo actually reaches an intermediate port.
If you’ve got any further questions on transhipment or direct shipping, please do not hesitate to leave a comment below or call us on 1300 227 461 to speak to one of our shipping experts and discover which shipment method is right for you.