What is Transport Management Responsibility?

What is Transport Management Responsibility and Why Does It Affect Costs?

The term transport management responsibility originates from the English phrase "management of carriage" and refers to the right and obligation to organize the transportation of goods, stipulated in a commercial or transport contract. It encompasses both the organization of transport and bearing the transport costs, as well as responsibility for the proper conduct of the transport process. Transport management responsibility is one of the key elements of every commercial transaction, regulating the relationship between the buyer and the seller.

In practice, transport management responsibility directly influences logistics, transport costs, transport risk, and the overall efficiency of the commercial operation.

Transport Management Responsibility and the Organization of Goods Transport

When establishing transport management responsibility, the parties to the transaction specify key elements of transport organization, including:

• Details of goods transportation – choice of transport mode (road, sea, air, or rail), route planning, and delivery schedules;
• Division of transport costs – including freight charges, handling fees, storage, and additional costs;
• The moment of transfer of responsibility and risk for the goods;
• Responsibility for cargo insurance (insurance management responsibility);
• Obligation to organize customs clearance – export and import, depending on delivery terms.

Properly defining these elements reduces the risk of disputes and misunderstandings between the parties.

Importance and Benefits of Transport Management Responsibility

The party holding transport management responsibility gains real influence over the transport process and the possibility to optimize transport costs through independent organization of transport. This means control over:

• Selection of carriers and transport companies;
• Negotiation of transport rates;
• Route and delivery schedule planning;
• Management of transport risk.

Organizing transport independently often allows for cost reduction, better tailoring of transport services to business needs, and greater operational flexibility.

Types of Transport Management Responsibility

Transport management responsibility can take various forms depending on which party in the transaction is responsible for organizing the transport of goods, bearing transport costs, and managing the transport process. In practice, three basic types of transport management responsibility are distinguished, differing in the scope of duties and liabilities of the contracting parties:

• Own transport management responsibility;
• Third-party transport management responsibility;
• Mixed transport management responsibility.

Own Transport Management Responsibility

Own transport management responsibility means that a party independently organizes the transport of goods and bears the related costs. This includes selecting the carrier, determining the mode of transport, coordinating the transport process, and handling logistical and documentation formalities.

Having own transport management responsibility provides full control over transport organization, allows for optimization of transport costs, and adjustment of transport services to the operational needs of the enterprise.

Third-Party Transport Management Responsibility

Third-party transport management responsibility occurs when the organization of transport and bearing of transport costs lies with the other party to the transaction – usually the counterparty. The party without transport management responsibility does not decide on the choice of carrier, route, or delivery schedules, and its responsibility in the transport process is limited.

This solution reduces logistical involvement but entails lack of influence on transport costs, transport process, and risk related to the delivery of goods.

Mixed Transport Management Responsibility

Mixed transport management responsibility involves dividing the duties related to transport organization between the parties. One party may be responsible for part of the transport process (e.g., domestic transport or customs clearance), and the other for the remaining stages of transport.

This model is often used in international transport, where the complexity of logistics, differences in regulations, and cost structure require flexible division of responsibility and transport costs.

Which Cost Elements Does Transport Management Responsibility Include?

Transport management responsibility covers the organization of goods transport and key costs resulting from the assumed scope of transport management responsibility, which can constitute nearly half of total logistics costs. The party assuming transport management responsibility is accountable for organizing the transport of goods, selecting the carrier, mode of transport, the transport process, customs clearance, and cargo insurance, gaining real influence on cost optimization and the final transaction price.

Freight and Handling Costs

The basis of costs in transport management responsibility are the costs of transporting goods, including freight, handling fees, transshipment, storage, and costs of domestic and international transport. Transport management responsibility precisely defines which party bears the obligation to organize transport, customs clearance costs, and cargo insurance.

Incoterms 2020 formulas such as CPT (Carriage Paid To) and EXW (Ex Works) clearly regulate the division of costs and responsibilities between parties in the transport process.

Cargo Insurance and Customs Clearance

Cargo insurance and customs clearance costs are significant elements of transport management responsibility costs. Insurance of transported goods reduces transport risk and minimizes financial consequences of damages occurring during transport.

Under the CIP (Carriage and Insurance Paid To) formula, the seller is obliged to organize transport and provide insurance for the goods, choosing between limited coverage and "all risk" insurance. Transport management responsibility also clearly defines which party is responsible for export and import customs clearance and bears the related costs.

Risk of Damage and the Moment of Its Transfer

A key element of transport management responsibility is the precise determination of the moment of transfer of responsibility and transport risk, which does not always coincide with the division of transport costs. Under Incoterms formulas from group C, the seller organizes and finances transport, but the risk passes to the buyer at the moment the goods are handed over to the carrier. In practice, this means the seller bears transport costs but not the risk of its course.

Depending on the formula, the moment of risk transfer occurs at:

• EXW – at the seller's premises;
• FOB/CIF – upon loading onto the ship;
• DAP/DDP – upon delivery of goods to the destination.

Correctly established rules affect the responsibility of the parties, transport costs, and the course of the transport process.

Transport Management Responsibility and Forwarding

Transport management responsibility and forwarding are closely related but serve different roles in the logistics process. Transport management responsibility defines which party in the transaction bears the obligation to organize transport, transport costs, and responsibility for the goods, while forwarding involves the practical execution of these tasks by the freight forwarder. In practice, the party holding transport management responsibility may commission forwarding services while retaining control over costs, carrier selection, and the transport process.

How to Avoid Mistakes When Establishing Transport Management Responsibility?

To avoid mistakes when establishing transport management responsibility, it is crucial to precisely define the rules of transport organization already at the stage of concluding the commercial contract. Incorrectly established transport management responsibility can lead to disputes, increased transport costs, problems with transport execution, and unclear division of responsibility and risk.

Key Contract Conditions

The basis is an unambiguous description in the contract of which party is responsible for organizing the transport of goods, selecting the carrier, the course of the transport process, customs clearance, and cargo insurance. It is necessary to clearly indicate the transport manager, scope of duties, and the moment of transfer of responsibility for the goods.

Lack of Knowledge of Current Incoterms 2020 Rules

A common mistake is lack of knowledge or incorrect application of Incoterms 2020. The contract should contain an exact designation of the rule, place of delivery, and the Incoterms version, which helps avoid misunderstandings regarding the division of costs and transport risk.

Excessive Trust in the Counterparty Without Verification

Equally important is verifying the counterparty and transport documents. Any discrepancies regarding the place of delivery, transport conditions, or data in the waybill should be immediately clarified to prevent organizational and financial problems.

Transport Management Responsibility – Summary

Transport management responsibility ensures a clear and unambiguous division of duties, costs, and responsibilities between the parties to a commercial transaction. Combined with a properly selected Incoterms rule, it allows precise determination of the moment of risk transfer, as well as who is responsible for organizing transport, choosing the mode of transport, cargo insurance, and customs clearance.

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