Chapter 18 Managing international supply chains Chapter 11

Chapter 18 Managing international supply chains Chapter 11: Strategic Leadership

Managing international supply chains This chapter covers the following aspects: • Distribution channels • International goods transport • International trade • Customs departments • Security issues • Free-trade agreements and free-trade zones • International trade information requirements • International trade documents • Data to be submitted for international movement • Incoterms Chapter 11: Strategic Leadership

Distribution channels • Choice of a distribution channel – Complexity of technical requirements – Lifespan of the product – Price of the product – Service requirements – Turnover • Distributors* • Trading houses * See Table 18. 1 Chapter 11: Strategic Leadership

Distribution channels (continued) • • • Government departments Industrial buyers Wholesalers Retailers Export agents* * See Table 18. 1 Chapter 11: Strategic Leadership

Differences between distributors and export agents Chapter 11: Strategic Leadership

International goods transport • Sea transport – Overview of basic commercial ocean tran practice – Liner ship operations • Container • Break-bulk (including ro-ro) • Bulk – Tramp ship operations • Voyage • Time period Chapter 11: Strategic Leadership

International goods transport (continued) • Sea transport (continued) – Private ship operations – Lighter-aboard ship operations (lash) • Air transport – Background – Air parcel postal services – Express or courier services Chapter 11: Strategic Leadership

International goods transport (continued) • Air transport (continued) – Passenger services • Combi aircraft • Conventional cargo hold below passenger deck(s) – Freight carriers • Non-operating service providers – Airfreight forwarders • Overview • Freight handling • Guaranteed shipment time Chapter 11: Strategic Leadership

International goods transport (continued) • Non-operating service providers (continued) – International ship freight forwarders – Non-vessel operating common carriers (NVOCC) – Shipbrokers – Ship agents Chapter 11: Strategic Leadership

World Trade Organization (WTO) WTO is the only international organisation dealing with global rules of trade. Its aim is to ensure trade flows smoothly. • Administers trade agreements • Creates forum for trade negotiations • Settles trade disputes • Reviews national trade policies Chapter 11: Strategic Leadership

Multilateral Trading System • Series of trading agreements • Consensus-based – not majority • Flow into national agreements Chapter 11: Strategic Leadership

Growth in global trade Global trade has grown 6 per cent annually in last 50 years. Chapter 11: Strategic Leadership

WTO advantages • Helps keep trade flowing (removes trade disputes – a potential cause of wars) • Disputes handled constructively • Rules make trading simpler • Free trade reduces costs • Greater choice of products • Trade raises incomes • Stimulates economic growth • More efficient • Governments not lobbied as consensus • Encourages good government Chapter 11: Strategic Leadership

Customs departments • Levy fees for imports (customs duties) • Duties based on a Harmonised Tariff Code for each group of products • Value of low or no import duties for growing trade (viz. Singapore) • Statistical information captured to promote trade • Security function: new addition Chapter 11: Strategic Leadership

Security • Theft and piracy – historical problems • Terrorism new challenge – attacks since late 1990 s around the world • Balance now being sought between need to search everything and cost-effective trade • No longer a domestic issue, but a global one Chapter 11: Strategic Leadership

Security programmes • First comprehensive programme – SOLAS (safety of life at sea) of IMO • Added ISPS (international ship and port facility security) • Mandatory – • Government sets security levels for vessels flying its flag; master of vessel must maintain the level of security on vessel. • Must have a security communications method to shore. • Port facilities must be secure and assessed. Chapter 11: Strategic Leadership

Security programmes (continued) • First was C-TPAT (customs-trade partnership against terrorism; USA 2001). • WCO instituted SAFE Framework to identify reputable, responsible trading partners to allow safe and secure trade. • From this came AEO (authorised economic operator; EU 2008): • Company information • Compliance to customs record • Accounting and logistics systems • Financial solvency • Safety and security requirements Chapter 11: Strategic Leadership

Other security programmes • Australia – Frontline • Singapore – Secure Trade Partnership • Sweden – Stair. Sec • Jordan – Golden List Programme Chapter 11: Strategic Leadership

Free-trade agreements • EU – 38 countries and growing in one union • NAFTA - North American Free Trade Agreement • SACU – Southern African Customs Union Chapter 11: Strategic Leadership

Free-trade agreements (continued) • Lower tariffs between members • Foster trade between local countries • Often grow into an entity that promotes efficiency within the larger grouping of countries Chapter 11: Strategic Leadership

Free-trade zones • Allow goods to move into a zone with no customs duties and leave with no customs restrictions. • Data is still kept by customs and movement monitored. • In some cases incentives offered to create businesses or manufacturing facilities within such zones. Chapter 11: Strategic Leadership

Trade information • Common data and correct documentation are required in order to facilitate trade. • International movements of goods involve: • Exporter • Importer • Shipping company • Freight forwarder • Land transport • Banks • Exporting country’s regulatory agencies • Importing country’s regulatory agencies • Regulatory agencies of intermediate countries that goods pass through Chapter 11: Strategic Leadership

Customs duties • Duties to enter a country are based on: • Harmonised Tariff Code, which attracts a certain percentage of the value of the goods • The country where goods originate within an FTA, or with special anti-dumping tariffs • Value of the goods • Country of origin and country from which goods are shipped are not necessarily the same. Chapter 11: Strategic Leadership

Harmonised Schedule or Tariff Code number • HS number is assigned in same way worldwide. • Mug example: • Highest level – liquid receptacle • Next level – drinking purposes • Next level – personal use • Next level – mug • HS number is made up of digits for each level to build up a nine-digit HS or HTS number to group goods. Chapter 11: Strategic Leadership

ECCN and licences • ECCN: Export Control Classification Number – five-digit alpha-numeric code • Identifies technology level and licensing requirements • Licences: various goods require licences in various countries – • Hazardous materials • Electronic goods Chapter 11: Strategic Leadership

Country of origin • Country in which the goods are made, or where the dominant value or value add is imparted to the goods • May require local country certification • Affects customs tariffs Chapter 11: Strategic Leadership

International trade documents • • Transaction documents Export documents Inspection documents Insurance documents Financial documents Import documents Transport documents Chapter 11: Strategic Leadership

Common documents in international trade • Customs declaration or commercial invoice • Packing list • Shipper’s letter of instruction • Bill of lading (or loading) (see next slide) • Dangerous goods certificate • Dock and master receipt Chapter 11: Strategic Leadership

Bills of loading (BOLs) • The following six BOLs are used: – Non-negotiable bill of lading – Negotiable bill of lading – Air waybill – Ocean bill of lading – Claused bill of lading Chapter 11: Strategic Leadership

Data for transactions base • Exporter details • Importer details • For each HS Code: • Material descriptions • Quantity • Value of each goods item and total • Weight • Licensing requirements Chapter 11: Strategic Leadership

Future requirements for data • Extended information – more details for importer, exporter, buyer and seller, as follows: • Who receives the goods when first entering a country (ship to partner) • Location and who stuffed the container/created the load • Consolidator of the load (forwarder? ) • Plus shipping details for: • Vessel stow plan • Container details and highest level of hazard for goods in the container Chapter 11: Strategic Leadership

Incoterms • Introduction • Use of Incoterms • Organisation of Incoterms 2000 – The E term (see Figure 18. 2) – The F terms (see Figure 18. 3) – The C terms (see Figure 18. 4) – The D terms (see Figure 18. 5) • Description of Incoterms 2000 – Table 18. 3 Chapter 11: Strategic Leadership

The E term Chapter 11: Strategic Leadership

F terms Chapter 11: Strategic Leadership

C terms Chapter 11: Strategic Leadership

D terms Chapter 11: Strategic Leadership

Categories of Incoterms (1) Group Code Name of term Group E Departure EXW Ex Works (named place) Group F Main carriage unpaid FCA FAS Free Carrier (named place) Free Alongside Ship (named port of shipment) Free On Board (named port of shipment) Chapter 11: Strategic Leadership FOB

Categories of Incoterms (2) Group Code Name of term Group C Main carriage paid CFR Cost and Freight (named port of destination) Cost, lnsurance, and Freight (named port of destination) Carriage Paid To (named place of destination) Carriage and Insurance Paid To (named place of destination) CIF CPT CIP Chapter 11: Strategic Leadership

Categories of Incoterms (3) Group Code Name of term Group D DAF DES Arrival DEQ DDU DDP Chapter 11: Strategic Leadership Delivered at Frontier (named place) Delivered Ex Ship (named port of destination) Delivered Ex Quay (named port of destination) Delivered Duty Unpaid (named place of destination) Delivered Duty Paid (named place of destination)

Notes on Incoterms 2000 Added wording Appropriate contract Customs of the port or trade EDI Export and import customs clearance • EXW and FCA • • • Chapter 11: Strategic Leadership

Notes on Incoterms 2000 (continued) • • • Inspection Insurable interest Packaging Passing of risks and costs Precise point of delivery Chapter 11: Strategic Leadership