Where security is required in the freight chain
A consignment moving through South Africa passes through several parties, each of which may extend credit or grant access to infrastructure. Security appears wherever one of those parties would otherwise be carrying an unsecured exposure.
The requirements below are the ones most commonly encountered by transport and freight businesses.
Common logistics security requirements
- Port and terminal credit facilities, covering handling, storage, wharfage and related charges billed on account
- Rail freight credit facilities, covering carriage and associated charges
- Freight forwarder and shipping agent obligations to carriers, terminals and principals
- Clearing agent obligations to the revenue authority in respect of clients' declarations
- Cross-border road transport arrangements, including movements under customs control into neighbouring states
- Bonded warehouse and depot operation, where goods are held under customs control
- Fuel accounts for a transport fleet, where bulk diesel is bought on credit terms
- Trading accounts with carriers, airlines and consolidators requiring security before terms are granted
Port, rail and terminal credit
Infrastructure operators bill substantial amounts on account and have limited practical recourse once a container has moved or a service has been rendered. Security before a credit facility is opened is therefore normal practice rather than an indication of concern about a particular customer.
The amount is set against the exposure that can accumulate within a billing cycle. That means it moves with volume, with tariff increases and with any extension of payment terms, and a business that has grown materially since the facility was opened may find its existing security no longer supports the volume it wants to move.
Congestion and delay complicate this. Storage and demurrage charges accrue when containers sit longer than planned, and those charges land on the same account. A guarantee sized on smooth operating conditions can be tested by a period of disruption.
Freight forwarders carry other people's obligations
A freight forwarder or shipping agent sits between its clients and the carriers, terminals and authorities that actually handle the goods. It contracts with those parties in its own name, which means it takes on obligations that arise from its clients' consignments and its clients' conduct.
That is the defining feature of the exposure. A forwarder can be entirely solvent and well managed and still face a substantial liability because a client failed to pay, misdeclared goods or abandoned a consignment.
Client selection is therefore a risk control rather than a commercial preference. Credit terms granted to clients, the concentration of exposure across a small number of accounts, and the ability to recover charges from clients all feed directly into the forwarder's own position.
Where the obligation is owed to the revenue authority
Many logistics businesses hold customs licences in their own right, as clearing agents, licensed warehouse operators or removers of goods in transit. Those activities attract their own security requirements under the customs legislation, sized against the duty at risk rather than against service charges.
The two sets of requirements are related in practice but are assessed differently, and a business holding both should understand how each is calculated and reviewed.
Read the customs bonds guide →
Cross-border movements
Road freight into neighbouring states adds layers. Goods may move under customs control, permits and cross-border transport authorisations are required, and the transporter is exposed to delays at border posts that are largely outside its control.
Security requirements can arise on both sides of a border, and an instrument acceptable in one jurisdiction is not automatically acceptable in another. A transporter planning to extend into new routes should establish the security position before committing to the work.
Fuel is usually the largest single account
For a road transport operator, bulk diesel is normally the largest recurring cost and the largest credit exposure. Suppliers require security before opening or extending a fuel account, and the amount moves with both volume and the fuel price.
That account is assessed on its own terms and is worth understanding separately from the port, rail and carrier facilities, because the drivers are different.
Read the fuel guarantees guide →
How a logistics guarantee is underwritten
The assessment is a credit review of the logistics business combined with a review of how it manages the exposures it takes on for others. Because the guarantee supports an ongoing account rather than a single contract, the guarantor is looking at the durability of the operation rather than the completion of a defined task.
Debtor management receives close attention. A forwarder that extends generous terms to clients while operating on tight terms with carriers and terminals is carrying a funding mismatch, and that mismatch is precisely what a guarantee call would expose.
Information usually requested
- Annual financial statements and recent management accounts
- Debtors age analysis, and the concentration of exposure across the largest client accounts
- The facility or account for which security is required, and the credit terms and billing cycle
- Monthly volumes and values moved, and the trend across recent periods
- Licences held, including any customs licences and the security already furnished for them
- Credit control procedures applied to clients, including how terms are set and enforced
- Operating history in the specific corridors, ports or services concerned
- The counter-indemnity, and any suretyships from directors or a holding company
Release and review
Because these guarantees support continuing accounts rather than finite projects, they tend to remain in place indefinitely and are easy to lose track of. A business that has changed carriers, closed a route or moved away from a terminal may still have security in issue supporting an account it no longer uses.
Maintaining a register of instruments in issue, the account each supports and whether that account is still active is a straightforward control that frees capacity for the facilities that actually matter.
The guarantee does not cover the cargo
A logistics guarantee secures payment and performance obligations to counterparties. It says nothing about loss of or damage to goods in transit or in store, liability to cargo interests, damage to vehicles and equipment, injury to third parties or interruption of the business.
Those exposures are the subject of a conventional insurance programme, and for a freight business the liability assumed under trading conditions and carriage contracts deserves particular attention in its own right.
Read the business and corporate insurance guide →
COMMON QUESTIONS
Logistics guarantee questions, answered clearly.
What is a logistics guarantee?
It is security given to a port or rail operator, terminal, carrier or trading counterparty so that a transport or freight business can operate on credit terms. It supports an ongoing account rather than a single project.
Why do infrastructure operators require security?
They bill substantial amounts on account and have limited practical recourse once a service has been rendered or a container has moved. Security before a credit facility is opened is standard practice rather than a comment on a particular customer.
How is the amount set?
It is normally sized against the exposure that can accumulate within a billing cycle, which is driven by volume, tariffs and the payment terms granted. It moves as the business grows and as tariffs increase.
Why is a freight forwarder's exposure different?
A forwarder contracts with carriers, terminals and authorities in its own name but on behalf of clients. It therefore assumes obligations arising from its clients' consignments and conduct, and can face a substantial liability because a client failed to pay or misdeclared goods.
Is a logistics guarantee the same as a customs bond?
No. A customs bond secures obligations to the revenue authority and is sized against duty at risk. A logistics guarantee secures payment and performance obligations to commercial counterparties such as ports, terminals and carriers. A business holding customs licences may need both.
Does cross-border transport create additional requirements?
It can. Goods may move under customs control, permits and transport authorisations are required, and security may be required on both sides of a border. An instrument acceptable in one jurisdiction is not automatically acceptable in another.
What happens if the guarantee is called?
The guarantor pays the counterparty and then recovers that payment from the logistics business under the counter-indemnity, which is frequently supported by suretyships from directors or a holding company.
What will a guarantor want to see?
Financial statements and management accounts, a debtors age analysis with client concentration, the facility and its billing cycle, monthly volumes and values moved, licences held, credit control procedures and operating history in the relevant corridors or services.
Should dormant guarantees be cancelled?
Yes. Because these instruments support continuing accounts they tend to stay in place indefinitely, and security supporting a terminal, route or carrier no longer used continues to occupy capacity that could support active facilities.
Does the guarantee cover cargo loss?
No. It secures payment and performance obligations. Loss of or damage to goods in transit or in store, liability to cargo interests, damage to vehicles and interruption of the business are the subject of conventional insurance.
