CHAPTER 14 International Logistics Learning Objectives

CHAPTER 14 International Logistics

Learning Objectives • To discuss macroenvironmental influences on international logistics • To explain documentation as well as terms of sale and methods of payment for international shipments • To distinguish among the unique activities of international trade specialists Copyright © 2015 Pearson Education, Inc. 14 -2

Learning Objectives • To examine transportation and inventory considerations in international distribution • To introduce you to the Logistics Performance Index Copyright © 2015 Pearson Education, Inc. 14 -3

International Logistics Key Terms • • • Balance of payments Cargo preference Certificate of origin Commercial invoice Embargoes Export management company Export packers Gross world product Import quota Incoterms International freight forwarders • International logistics • • • Copyright © 2015 Pearson Education, Inc. 14 -4

International Logistics Key Terms • Letter of credit • Load centers • Logistics performance index (LPI) • Macroenvironmental influences • Methods of payment • Nontariff barriers • Nonvessel-operating common carrier (NVOCC) • Ocean carrier alliances • Open account Copyright © 2015 Pearson Education, Inc. 14 -5

International Logistics Key Terms • Open skies agreement • Shipping conferences • Shipper’s export • Short-sea shipping declaration (SED) • Tariffs • Shipper’s letter of instruction (SLI) Copyright © 2015 Pearson Education, Inc. 14 -6

International Logistics • International logistics – logistics activities associated with goods that are sold

International Logistics • International logistics occurs when: – A firm exports a portion of a product made or grown – A firm imports raw materials – Goods are partially assembled in one country and then shipped to another, where they are further assembled or processed Copyright © 2015 Pearson Education, Inc. 14 -8

International Logistics • International logistics occurs when: – The firm is global in outlook and sees almost all nations as being markets, sources of supply, or sites for markets or for assembly operations – Because of geography, a nation’s domestic commerce crosses foreign borders, often in bond Copyright © 2015 Pearson Education, Inc. 14 -9

Macroenvironmental Influences on International Logistics • Macroenvironmental influences – refer to the uncontrollable forces and conditions facing an organization and include cultural, demographic, economic, natural, political, and technological factors. Source: http: //www. marketingpower. com/_layouts/Dictionary. aspx? d. Letter=M. Copyright © 2015 Pearson Education, Inc. 14 -10

Macroenvironmental Influences on International Logistics • Factors for macroenvironmental influences – Cultural – Demographic – Economic – Natural – Political – Technological Source: http: //www. marketingpower. com/_layouts/Dictionary. aspx? d. Letter=M. Copyright © 2015 Pearson Education, Inc. 14 -11

Macroenvironmental Influences on International Logistics • Political factors – Political restrictions on international trade can take a variety of forms • Tariffs • Nontariff barriers – Import quota – Limits the amount or product (either in units or by value) that may be imported from any one country during a period of time • Embargoes ─ the prohibition of trade between particular countries Copyright © 2015 Pearson Education, Inc. 14 -12

Macroenvironmental Influences on International Logistics • Political factors – Degree of federal government in cross-border trade • Balance of payments ─ system of accounts that records a country’s international financial transactions 1 • Subsidies • Cargo preference rules 1 Ibid Copyright © 2015 Pearson Education, Inc. 14 -13

Macroenvironmental Influences on International Logistics • Economic factors – Currency fluctuations – Market size – Income – Infrastructure – Economic integration Copyright © 2015 Pearson Education, Inc. 14 -14

Macroenvironmental Influences on International Logistics • Cultural factors – Religion – Values – Rituals

Macroenvironmental Influences on International Logistics Copyright © 2015 Pearson Education, Inc. 14 -16

Macroenvironmental Influences on International Logistics Copyright © 2015 Pearson Education, Inc. 14 -17

Macroenvironmental Influences on International Logistics Copyright © 2015 Pearson Education, Inc. 14 -18

International Documentation 1 • Flow of documentation is as much a part of the main logistical flow as the flow of product • Domestic shipments typically only require several pieces of documentation • Export shipments typically require approximately 10 pieces of documentation • Cross-border trades can require more than 100 separate documents 1 This material in this section is drawn from Donald F. Wood, Anthony Barone, Paul R. Murphy, and Daniel L. Wardlow, International Logistics, 2 nd ed. (New York: Amacom, 2002), Chapter 12. Copyright © 2015 Pearson Education, Inc. 14 -19

International Documentation • Necessary documents are required at the point of importation • Commonly used documents include: – Certificate of origin – Commercial invoice – Shipper’s export declaration (SED) – Shipper’s letter of instruction (SLI) Copyright © 2015 Pearson Education, Inc. 14 -20

International Documentation • Terms of sale involves: – Parties working within the negotiations channel – Looking at the possible logistics channels – Determining when and where to transfer the following between buyer and seller: • Physical goods • Payment for the goods, freight charges, and insurance for the in-transit goods • Legal title to the goods • Required documentation • Responsibility for controlling or caring for the goods in transit, i. e. livestock Copyright © 2015 Pearson Education, Inc. 14 -21

International Documentation • Terms of sale for international shipments are commonly referred to as Incoterms. – Developed in the 1930’s and is periodically revised – Current version – Incoterms 2010 reflects rapid expansion of global trade with focus on improved cargo security and new trends in cross-border transportation 1 1 Export. gov—Incoterms 2010. Copyright © 2015 Pearson Education, Inc. 14 -22

International Documentation • Incoterms 2010 involve two key changes – Organizing the terms by modes of transport • Characterized as Group 1 • Applies to any mode of transport – Using the terms in both international and domestic transportation • Characterized as Group 2 • Applies to sea and inland waterway transport only Copyright © 2015 Pearson Education, Inc. 14 -23

International Documentation • Incoterms 2010 – Group 1 Terms • • EXW (Ex. Works) FCA (Free Carrier) CPT (Carriage Paid To) CIP (Carriage and Insurance Paid To) DAT (Delivered at Terminal) DAP (Delivered at Place) DDP (Delivered Duty Paid) Copyright © 2015 Pearson Education, Inc. 14 -24

International Documentation • Incoterms 2010 – Group 2 Terms • • FAS (Free Alongside Ship) FOB (Free on Board) CFR (Cost and Freight) CIF (Cost, Insurance, and Freight) Copyright © 2015 Pearson Education, Inc. 14 -25

Methods of Payment 1 • Methods of payment refer to the manner by which a seller will be paid by a buyer. • Much more challenging in international logistics vs. domestic logistics • Four methods of payment include: – – Cash in advance Letters of credit Bills of exchange Open account 1 The material in this section is largely drawn from Jim Sherlock and Jonathan Reuvid, eds. , The Handbook of International Trade (Edinburgh, UK: GMB Publishing, 2005), Part 8. Copyright © 2015 Pearson Education, Inc. 14 -26

Methods of Payment 1 Copyright © 2015 Pearson Education, Inc. 14 -27

Methods of Payment • Payment method – Should be established at the time that a shipment price is decided upon – Can be influenced by key factors such as • the country the product is to be sold in • the seller’s assessment of buyer risk Copyright © 2015 Pearson Education, Inc. 14 -28

International Trade Specialists • International Freight Forwarders – Specialize in handling either vessel shipments

International Trade Specialists • Principle functions of International Freight Forwarders include: – Advising on acceptance of letters of credit – Booking space on carriers – Preparing an export declaration – Preparing an air waybill or bill of lading – Obtaining consular documents – Arranging for Insurance – Preparing and sending shipping notices and documents – Serving as general consultant on export matters Copyright © 2015 Pearson Education, Inc. 14 -30

International Trade Specialists Copyright © 2015 Pearson Education, Inc. 14 -31

International Trade Specialists Copyright © 2015 Pearson Education, Inc. 14 -32

International Trade and Supply Chain Specialists • Nonvessel-operating common carrier (NVOCC) • Export management

Transportation Considerations in International Logistics • Ocean shipping • International airfreight • Surface transportation

Transportation Considerations in International Logistics • Ocean Shipping – Approximately 60% of cross-border shipments move by water transportation – Variety of ship types include: • Dry-bulk • Dry cargo • Liquid bulk • Parcel tanker • Containerships – Shipping conferences and alliances pool resources and extend market coverage Copyright © 2015 Pearson Education, Inc. 14 -35

Transportation Considerations in International Logistics Copyright © 2015 Pearson Education, Inc. 14 -36

Transportation Considerations in International Logistics Copyright © 2015 Pearson Education, Inc. 14 -37

Transportation Considerations in International Logistics • International Airfreight – Three types of international airfreight operations include: • Charted aircraft • Integrated air carriers • Scheduled air carriers Copyright © 2015 Pearson Education, Inc. 14 -38

Transportation Considerations in International Logistics • Surface Transport Considerations – Transit times can be significantly impacted by a country’s infrastructure and modal operating characteristics. – Short-sea shipping (SSS) is an alternative to surface transporting Copyright © 2015 Pearson Education, Inc. 14 -39

Transportation Considerations in International Logistics Copyright © 2015 Pearson Education, Inc. 14 -40

International Trade Inventories • Safety stocks must be large due to greater uncertainties, misunderstandings and or delays. • Inventory valuation is difficult due to continually changing exchange rates. • Product return (reverse logistics) policies must be understood. • Insufficient warehousing practices can lead to higher inventory carrying costs. Copyright © 2015 Pearson Education, Inc. 14 -41

Logistics Performance Index (LPI) • Relatively new international logistics concept (2007) • Updated in 2010 • Created in recognition of the importance of logistics in global trade • Incorporates data for approximately 155 countries Copyright © 2015 Pearson Education, Inc. 14 -42

Logistics Performance Index (LPI)1 • Measures a country’s performance across six logistical dimensions – Efficiency of the clearance process by border control agencies, including customs – Quality of trade- and transport-related infrastructure – Ease of arranging competitively priced shipments – Competence and quality of logistics services – Ability to track and trace consignments – Timeliness of shipments in reaching the destination within the scheduled or expected delivery time 1 The material in this section is based on Logistics Performance Index, http: //lpisurvey. worldbank. org/ Copyright © 2015 Pearson Education, Inc. 14 -43

Copyright Notice All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2015 Pearson Education, Inc. 14 -44