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Transport Management & Theory Practices (3)

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  • Vigilant carrier selection processes will lead manager to reputable transportation service
  • The E terms consits of one incoterm, Ex Works (EXW). This is a departure contract that gives the importer total responsibility for the shipment.
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    • 1. Chapter 3 Transportation’s Role in Global Trade Planning © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
    • 2. Introduction • Global economy in a volatile period – Much downward pressure on transport rates • In an economy focused on cost control, both carriers and their customers must plan effectively • Chapter focus: proper global transport planning • Chapter organization – Global transport industry: size, options, flows – Key planning issues: trade and payment terms, documentation – Mode, carrier, and route selection criteria © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2
    • 3. Overview of Global Transportation • Total global merchandise exports – $14 trillion in 2009, $15.8 trillion in 2008 – $750 B. spent on transport services in 2007 – 8 B. tons moved in international seaborne trade in 2007, accounting for 80-90% of global trade • U.S. is largest trading partner – Exports: $1.3 trillion, imports: $2.1 trillion – Creates large transportation flows to/from U.S. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3
    • 4. Overview of Global Transportation Global Trade Agreements  Trade stimulated by free trade agreements  Agreements between nations that lift most tariff, quota, and fee/tax limitations on trade  Bi-lateral agreements are between two nations  U.S. currently in 14 bi-lateral free trade agreements  Regional trade agreements involve 3+ nations  U.S. currently involved in:  Free Trade Area of Americas  Middle East Free Trade and Enterprise for ASEAN Initiatives  North American Free Trade Agreement (NAFTA) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4
    • 5. Overview of Global Transportation Global Trade Agreements • NAFTA includes U.S., Mexico, and Canada – Principles include: • Unimpeded flow of goods • Enhanced cross-border movement of goods/services – Principles were to enable transport carriers to move more easily between countries • Today, Canadian carriers have same rights in U.S. as U.S. carriers have in Canada – May transport domestic traffic when incidental to return trip • Same accessibility is not currently available between U.S. and Mexico© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5
    • 6. Overview of Global Transportation Logistics Channel Issues Transaction channel activities A key activity is specifying when and where legal title to goods transfers. Defines responsibility for:  Mode and carrier selection and shipment routing  Obtaining insurance coverage  Payment for transport services, insurance, and import duties  Compliance with regulations, management of goods while in- transit, and financial liability while in-transit © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6
    • 7. Overview of Global Transportation Logistics Channel Issues A 2nd key transaction channel activity is arranging payment for the goods  Obtaining payment is riskier in global trade compared to domestic trade  Advance payment would be ideal for exporter  Importer would be concerned about paying in advance of seeing/inspecting the goods  There are many terms of payment options used to balance these risks © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7
    • 8. Overview of Global Transportation Logistics Channel Issues • Communication channel – Documentation requirements are much higher for global than for domestic transactions • Example: 150 documents required for each import shipment of perishable food as it moves through cold chain – Organizations requiring documentation include: • Countries of export and import • Transportation companies, banks, and the importer – Many documents not in electronic form © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8
    • 9. Overview of Global Transportation Logistics Channel Issues  Distribution channel  Greater distance and complexity of global shipments means higher risk of disruptions  Global freight moves through more facilities and handled by more intermediaries  Transport infrastructure, regulations, and service options vary from country to country  Requires more diligence in transport mode, carrier and route selection decisions properly matching freight to the most appropriate mode will facilitate safe & cost efficient distribution of goods © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9
    • 10. Overview of Global Transportation Global Transportation Challenges • Proper long-range planning requires: – Monitoring macro-level issues, such as: • General business/economic trends, including fuel prices • Changes in governmental regulations and interventions • Consumer demand trends – Monitoring specific issues, such as: • Trade level fluctuations • Carrier consolidation activity • Security risks • Shifts in regional sourcing © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10
    • 11. Export Preparation Activities • Key export preparation activities are: – Choosing terms of trade – Securing freight insurance – Agreeing upon terms of payment – Completing required freight documentation • Completion of these activities helps to: – Clarify importer and exporter responsibilities – Protect each party’s financial interest – Improve freight control and visibility – Facilitate problem-free transport © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11
    • 12. Export Preparation Activities Terms of Trade • Terms of trade define where responsibilities transfer from exporter to importer • Govern decision making authority for movement of the product • Establish when and where ownership and title of goods pass from exporter to importer • Clarifies which organization incurs delivery- related costs © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12
    • 13. Export Preparation Activities Terms of Trade Potentially, each country could have its own set of trade terms This would create uncertainties in the meaning of terms and raise transaction costs Thus, a worldwide standardized set of terms and definitions was established  Known as the International Commercial Terms  Common name is Incoterms © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13
    • 14. Export Preparation Activities Terms of Trade • Incoterms – 13 different Incoterms, divided into 4 primary groups, are available • All 13 apply to ocean transport • Just 7 Incoterms are appropriate for air, truck, rail and intermodal transport – Typically expressed as three letter acronyms with a named location • Examples: DEQ, Long Beach, CA, U.S.A., Incoterms 2000 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14
    • 15. Export Preparation Activities Terms of Trade 4 primary groups of Incoterms  E term: Importer takes full responsibility  Consists of just one Incoterm: Example Works (EXW)  F terms: Exporter has responsibility for getting shipment from origin to port of embarkation  3 F terms  Free Carrier (FCA): may be used with any mode  Free Alongside Ship (FAS): water transport only  Free On Board (FOB): water only and exporter assumes responsibility for cargo loading © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15
    • 16. Export Preparation Activities Terms of Trade • C terms: Exporter obtains and pays for main transport leg and/or cargo insurance. 4 C terms: – Cost and Freight (CFR): water shipments only – Carriage Paid To (CPT): any mode of transport – Cost, Insurance, Freight (CIF) and Carriage and Insurance Paid To (CIP): Exporter pays for main carriage and insurance • D terms: Exporter responsible for delivery of shipment to foreign destination. 5 D terms: – Delivered at Frontier (DAF): all modes. – Delivered Ex Ship ((DES) and Delivered Ex Quay (DEQ) : water shipments only – Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP): all modes. Highest levels of exporter responsibility © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16
    • 17. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 Table 3-2
    • 18. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18 Figure 3-3
    • 19. Export Preparation Activities Cargo Insurance International shipments exposed to larger financial risks and transport perils Financial risks for cargo owner  Significant dollar limitations on ocean and air carrier liability  If there is damage or delay, burden of proof falls on cargo owner to prove that carrier was at fault Transportation perils  Many ocean-related perils, including cargo movement, water damage, overboard losses, and hijacking  Perils by other modes are relatively minor © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19
    • 20. Export Preparation Activities Cargo Insurance Managing risks Decision between retaining or transferring risks Retaining risk is essentially self insurance. Makes most sense when:  Goods shipped are low value or not susceptible to damage  Carriers used rarely deliver damaged or lost freight  A damaged shipment would have relatively minor financial impact on the freight owner Risk transfer via insurance is appropriate when above conditions are not met © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20
    • 21. Export Preparation Activities Terms of Payment  Terms of payment exist to manage higher risks of international sales transactions  Letter of credit (LC)  Ensures exporter is paid and importer receives goods as expected  Importer’s bank issues LC to the exporter  Bank guarantees payment provided goods delivered per terms of the LC  Bank uses importer’s line of credit to guarantee payment  Bank charges the importer a fee for issuing the LC © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21
    • 22. Export Preparation Activities Terms of Payment  Draft or bills of exchange  Similar to a check, except title to the goods does not transfer to importer until draft is paid  Sight draft  Used when exporter wishes to retain ownership until goods are delivered and payment received  The original ocean bill of lading (showing title) must be presented to carrier before goods are released to importer  Time draft  Used when exporter extends credit to buyer  Payment due within time period specified on draft © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22
    • 23. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23 Table 3-3
    • 24. Export Preparation Activities Freight Documentation Freight documents control movement of cargo Mistakes or missing documents inhibit flow of goods Documentation requirements set by customs regulations of exporting and importing countries Freight forwarders are documentation experts Four types of documents Invoices and transportation documents Export and import documents © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24
    • 25. Export Preparation Activities Freight Documentation  Invoice or bill for the goods  International invoices are more complex and there are several types  Commercial invoice is most common. Must contain:  Description of goods, quantities and value – may impact duties  Country of origin, Incoterms, and parties to the transaction  Pro-forma invoice - actually a sales quote  Used by buyers to estimate total landed costs for potential order  Consular invoice - prepared by exporter  Certified in origin country by consul of destination country © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25
    • 26. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26 Figure 3-4
    • 27. Export Preparation Activities Freight Documentation  Export documents  Used by many countries to:  Develop statistics (types, volume, value) of goods exported  Control exports of strategic materials, national treasures  For exports from U.S., following documents required:  Shipper’s export declaration (SED)  Required on all exports exceeding a nominal value and all exports requiring an export license  Export license  Used to control export of sensitive materials to selected countries  Certificate of end use  Purpose: assure exporting country that product put to intended use © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27
    • 28. Export Preparation Activities Freight Documentation Import documents Intended to:  Protect citizens from inferior quality products  Properly classify products for collection of duties  Limit imports of products deemed inappropriate Certificate of origin  Most widely required import document  Indicates shipment origin, but not location of production  Used to determine appropriate import tariff © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28
    • 29. Export Preparation Activities Freight Documentation Certificate of manufacture  Indicates location of product production  Also used to determine appropriate import tariff Certificate of inspection  Attests to authenticity and accuracy of description of the goods shown in the commercial invoice Other import documents  Phyto-sanitary certificates  Certificate of analysis  Certificate of certification © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29
    • 30. Export Preparation Activities Transportation Documents Carrier manifest Lists critical information needed to perform the transport service Bill of lading – primary transport document Contract of carriage between cargo owner and transport company Serves as receipt for the goods For international shipments, ocean bill of lading and air waybills are used © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30
    • 31. Export Preparation Activities Transportation Documents Various types of bills of lading  Through bill of lading  Intermodal bill of lading Negotiable vs. non-negotiable bill of lading  If non-negotiable, carrier must deliver only to consignee named on the bill  If negotiable, the person possessing the bill has the right of ownership to the goods © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31
    • 32. Export Preparation Activities Transportation Documents Transport documents are largely paper-based Major challenge: move toward electronic document format International Air Transport Association e-freight initiative  Intended to replace the 20 most widely used paper documents with electronic messages  Anticipated to reduce costs by $4.9B, improve accuracy, and speed transmission of information Other U.S. electronic document initiatives  Automated Commercial Environment  Auto. Brokers Interface System, Auto. Export System © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32
    • 33. Transportation Planning Mode Selection Decision must achieve best fit and balance between: Modal service capabilities  Accessibility, capacity, transit time, reliability, safety Product characteristics – size, durability, value Supply chain requirements for speed, service, cost Decision must also align with corporate strategy, control risk and provide required level of customer service © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33
    • 34. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34 Table 3-4
    • 35. Transportation Planning Carrier Selection Decision based on best fit and balance between: Geographic coverage Average transit time and reliability Reliability of on-time pickup and delivery Technical capabilities, ability to share information Equipment availability and capacity Product protection/carrier’s freight damage experience Carrier’s financial stability and freight rates Service factors tend to outweigh cost © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35
    • 36. Transportation Planning Carrier Selection Carrier selection strategy Leverage transportation dollars by using a limited number of carriers Build relationships with service providers Monitor carrier performance, rates, and financial stability Have contingency plan with back-up carriers Differs from mode selection decision Many more options to choose from Decision made more frequently but not for each move © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36
    • 37. Transportation Planning Route Planning Carriers(pembawa) primarily responsible for routing However, shippers(perkapalan) should have input to ensure proper consideration given to: Customer satisfaction and supply chain performance Efficiency and product safety during transit Routing decisions should be Coordinated with mode and carrier selection Aligned with global sourcing, inventory, demand fulfillment strategies © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37