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Los Angeles Port Crisis, When Will America Take Notice?

The ongoing congestion and labor issues that are plaguing Los Angeles and now all other U.S. West Coast Ports would seem to me about to reach catastrophic levels and potentially greatly weaken the U.S. Economy in 2015.  But it is interesting to me, in talking with friends and relatives not in the Logistics Industry, how little any of this is hitting the news.  With all the violence in the world dominating the nightly and other news programs this issue has been slow in developing for seemingly most of the country.

Perhaps it is quite different out West.  I traveled to California back in October and it was obvious that most in my company were much more knowledgeable than my East coast colleagues.  But due to I spent most of my time on this trip with others in the Logistics Industry it would be interesting to know the average West coast person’s take on the situation.

I had two experiences recently that highlighted how little is known by people working outside the realm of Logistics.  Two weeks ago I served jury duty.  While sitting in the jury selection/waiting room, I struck up conversations with 2 very sharp people.  One was a retired engineer that had spent most of his life in the textile industry.  Another was a very well informed person from the woodworking industry.  Neither of them were aware that there were any issues with the ports.  I find it most interesting that the retired person from the textile industry was not familiar, due to globalization greatly affected his industry.  But, once one retires, it would be somewhat expected that one would lose touch.

The other experience was in my Homeowner’s Association Board Meeting.  I serve as Secretary.  The other members of our Board include a Plumbing Contractor/Engineer, a Financial Specialist, an IT/Computer Network Specialist, a Real Estate Agent and our Association Manager.  Making some small talk before our meeting I spoke a little about the situation.  None were familiar with the situation.  In fact, the IT/Computer remarked that it had taken 25 days for him to receive a part that he had to order from China.  He remarked “and that was express!”  But I gathered that it was not air freight due to he had been offered that as an option but it was too expensive.  I didn’t go into a lot of detail but mentioned to him that it was almost nothing short of a miracle that it had arrived so quickly.

Please note that I have a tremendous amount of respect for each one of these people.  It is simply an observation that the news of the issues out West have not hit the mainstream press.  So at least in the Eastern part of the country the information has been slow to trickle out.  I expect that to change dramatically in the coming days.

For 2 excellent articles about the situation, please see this link from Business Insider:  http://www.businessinsider.com/r-shippers-suspend-weekend-cargo-loading-at-us-west-coast-ports-2015-2 and http://www.zerohedge.com/news/2015-02-05/catastrophic-shutdown-americas-supply-chain-looms-west-coast-port-worker-talks-break

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Factory Man: An Important Novel for Logistics Professionals

I just completed reading Beth Macy’s non-fiction book, Factory Man: How One Furniture Maker Battled Offshoring, Stayed Local—and Helped Save an American Town. Recently reviewed by the New York Times, it chronicles the Bassett Family and the town of Bassett, Virginia.  It tells of how globalization has adversely affected the working class of the Unites States.

The book is of personal significance for me. I grew up in Bassett and then later Galax, Virginia, both furniture manufacturing towns. There is much that Beth Macy has put into perspective that until now, I never completely understood.  My father worked for Bassett and then later Vaughan Furniture and is quoted in Factory Man several times.  We moved from Galax when I was 13, relocating to High Point, North Carolina as my he took on a new role working for a different furniture company, and I lost touch with the area.  So although I knew much of the information and stories referenced in this book, it was absolutely fascinating to have someone able to provide broader perspective as completely as Beth Macy has done.

But much more significantly, Factory Man tells the story of the displaced American worker.  It is a saga that could easily have been about any number of Southern towns.  My wife and I currently reside in Greensboro, North Carolina.  Our home is in the shadow of once booming textile factories.  Many of our neighbors were displaced from these factories after having generations of their family members work there.  Some of these people are having a very difficult time surviving.

It’s a great business story, but it’s also character-driven as it recounts the trials and tribulations of John Bassett III, grandson of the founders of Bassett Furniture.  It tells of his taking on globalization, saving the factory and company of Vaughan-Bassett. It reaffirms that given the tools and equipment, the American worker can compete with anyone.

I find it ironic that in order to survive and make a living in the area where I live, I find myself working in the world of logistics.  I got into this field mostly because it was an area of business that has fascinated me since college.  But interestingly, one of my chief duties is helping people in the United States find better, faster, and less expensive ways of getting their imports in from Asia. The people most like my father and grandfather, who both made their living from being tied to the manufacturing industry, now live in an entirely different culture and speak a different language.

On another personal note, the story of John Bassett III has been inspirational for me.  His work ethic, determination and drive have helped me to be a better leader in my work.

Choosing the Right NVOCC

My last entry I was discussing the differences between BCO’s, VOCC’s, NVOCC’s and Freight Forwarders.  Establishing that your company will begin Importing, you have decided to use an NVOCC to assist.  You expect your volume the first year to be 10 to 20 TEU and now the question is, which NVOCC to choose? The first thought would be going with one that already has a very large amount of volume and clout.  The more volume the NVOCC handles, the better discounts and pricing it should have with the VOCC’s, correct? While this is in fact often the case, going with one of the larger NVOCC’s may or may not be the best idea. 

Though using one of the biggest NVOCC’s will most likely help to secure an excellent price, there are many other things to consider.  If you are truly new to importing, having access to staff at the NVOCC that is willing and able to take the time educating you on the processes involved is critical.  Importing can be quite complex.  Your company will not be a top priority for a lot of the larger NVOCC’s.  They will be quite busy managing their customers with greater freight volumes.

The NVOCC’s relationship to domestic trucking companies is also important.  Many NVOCC’s move tremendous amounts of ocean shipments.  But once the freight gets to the U.S. and is Customs Cleared, it will then be imperative that they are able to access a trucking company quickly to make the final delivery to you.  Many NVOCC’s have very close relationships with trucking companies, or are a division of a trucking company themselves.  This gives this type of NVOCC the added flexibility of handling the final, critical delivery portion of the shipment smoothly and effectively.

Think of it this way.  Let’s say not all of your imports will be FCL.  You will have some shipments that are just a pallet or two.  Furthermore, let’s say that your company is located in a fairly rural part of Indiana.  For this example you have a 2 pallet shipment that arrives at the CFS  in Chicago.   If the NVOCC does not have trucks themselves, then they will have to contract this out, or worse, broker it out! If they are brokering it, your freight can sit for several days while they locate someone willing to go your location.

Oftentimes, Importers get too fixated on price of the freight costs alone.  Having multiple options is also important.  The NVOCC that you work with will need to have relationships with many VOCC’s.  An important key to moving the freight smoothly will be access to space with the carriers.  For example, if your shipment is to depart the port of Shanghai and is ready on March 15, but your NVOCC cannot find space for you until a March 30 sailing, the time lost in the freight not departing in a timely fashion negates any savings you may have had by having a low price.  In fact, not only does it negate the savings, it ends up costing your company significantly in either down time or your customers’ being upset due to the delay.

Ideally, your NVOCC would present you with multiple options.  They may either have a low contract price option with a carrier, or are able to obtain “bullet” or “spot” rates to save money.  Similar to when you go to a website like www.priceline.com NVOCC’s have options to get last minute savings from carriers looking to fill out a vessel.  The thing to remember here, however, is those low cost options fill up quickly.  It’s kind of like going to the supermarket and noticing they have a special on toothpaste, but once they sell all that is on display, the deal is over.

Communication is also very vital.  In this day and age, it is so very important to have access to the answers you need, when you need them.  Your NVOCC must be in very close contact with the Carriers, its partner Agents, Customs Brokers, CFS locations and other parties to be able to provide you information regarding your freight’s status.

Lastly, flexibility is also an incredibly important characteristic your NVOCC must have.  International shipping is amazingly complex.  So many things can happen that can cause delays.  With freight moving thousands of miles, inclement weather can be a major factor.  Also there could be congestion at the ports.  There can be issues with the freight clearing Customs.  With these types of issues and many more, your NVOCC must have access to different options to help mitigate delays.  So much of the just mentioned issues are beyond the NVOCC’s control.  But there must be access to fast trucking options, and direct assistance from Customs Brokers to communicate with governments regarding Customs Clearance issues.  If you are working with an NVOCC that does not have the time or resources to pay close attention to these details, you will be setting yourself up for disappointment.

Please feel free to post comments!

BCO VS VOCC VS FREIGHT FORWARDER VS NVOCC

There is much confusion regarding the understanding of the Acronym titles above.  It would be best to break each one down and discuss the advantages or disadvantages of using each.  For simplicity, we will focus only on Importing.

BCO stands for Beneficial Cargo Owner.  Zepol, a top U.S. trade data provider, defines BCO as “an importer that takes control of their cargo at the point of entry and does not utilize a third party source.”  This means that a BCO is a company with enough importing clout, bringing in enough freight to negotiate contracts directly with a VOCC.  Typically, most BCO’s expect to import at least 100 TEU’s.  The easiest examples of BCO’s are your large retailers like Walmart, Target, Best Buy.

VOCC, therefore, stands for Vessel Operating Common Carrier.  These are the owners of those massive container carrying boats that traverse the oceans.  Examples include Hapag Lloyd, CMA-CGM or Maersk.  The FMC (Federal Maritime Commission) further defines VOCC as having the following characteristics:

  • Holds itself out to the general public to provide transportation by water of passengers or cargo between the United States and a foreign country for compensation
  • Assumes responsibility for the transportation from the port or point of receipt to the port or point of destination
  • Uses, for all or part of that transportation, a vessel operating between a port in the United States and a port in a foreign country

For a very thorough list of VOCC’s, click here:  https://www2.fmc.gov/FMC1Users/scripts/ExtReports.asp?tariffClass=vocc

Let’s say that you have decided to become an importer.  You may of course contact a VOCC directly.  However, if you do not expect to import a significant volume of freight, the VOCC will charge you full tariff price.  Tariff being defined in this case as a table of charges.  Most freight charges for shipments into the U.S. are priced at significantly less than full tariff rate.  There are some simple, if harsh reasons for this.  First, more volume means bigger discounts.  But also, VOCC’s want to limit the number of people/companies/entities contacting them.  They simply do not have the capacity to handle phone calls or answer emails from all importers.  It’s the same if you were to buy direct from a manufacturer.  It can be done, but typically they do not have the time to speak to everyone.

So, if you intend to import and do not expect the amount of volume described above, what is your next best choice? You will need to form a relationship with a Freight Forwarder that either accesses an NVOCC, or is an NVOCC.  In other words, a Freight Forwarder can be an NVOCC, or Non-Vessel Operating Common Carrier, but many are not.  Both are essentially third party logistics providers.

In a very recent blog entry, http://www.howtoexportimport.com explained the differences thusly:

“The definition and act of a Freight Forwarder and NVOCC is described by government of various countries differently. The legal obligations to government, clients and public vary from country to country for an NVOCC and a Freight forwarder. 

A Non Vessel Operating Common Carrier is a cargo consolidator who does not own any vessel, but acts as a carrier legally by accepting required responsibilities of a carrier who issues his own bill of lading (or airway bill), which is called House bill of lading under sea shipment and House airway bill under air shipment.  Activities between a NVOCC and a Freight Forwarder are similar to each other except some differences. An NVOCC need not be an agent or partner of a Freight Forwarding company, whereas a Freight Forwarding company can act as a partner or agent for an NVOCC. 

 Basically speaking, NVOCC acts a ‘carrier to shipper’ and ‘shipper to carrier’.

NVOCC can own and operate their own or leased containers.  NVOCC acts as a virtual carrier and accepts all liabilities of a carrier legally, in certain areas of operation.”

An NVOCC is able to take the clout of its many customers and negotiate with the VOCC’s for better pricing.  It can work with these steamship lines by bringing estimates to the table of expected freight volume for certain lanes and gain tariff relief (discounts).  As Thomas Cook states in his book, Mastering Import & Export Management, 5 “the NVOCC becomes like a buying cooperative or purchasing group that works on the concept of clout in negotiation.  The clients of the NVOCC benefit as the membership grows and the management becomes stronger.”

Statistics show that as a percentage of imports, NVOCC’s are playing a greater role.  This could be the result of Internet commerce in which there are more and more importers that are bringing in significant volume, but still not enough to negotiate directly with the VOCC’s.  This interesting chart from Zepol puts it in perspective:  Zepol Chart

So what does this mean essentially for a new importer? In a nutshell, if you work with a Freight Forwarder that is not NVOCC, they will need to access one that is.  And that means you are probably not getting the best pricing and/or service.  A Freight Forwarder that is not NVOCC becomes an additional middle person in your supply chain, taking the rate that the NVOCC gives them and marking it up.  Interestingly, per FMC regulations, they are not allowed to increase the ocean freight rate supplied to them by an NVOCC, but must add an additional line item, accessorial fee or handling charge to the rate they give to their customer. 

But perhaps even more important than pricing, is the service that you will receive.  If your Forwarder is not an NVOCC, you, as the importer, do not really know who is handling and/or controlling your freight.  You will likely have less visibility when attempting to track a shipment.  An excellent website, Differencebetween.net, defines it further:

“The essential difference is how they act in relation to the cargo. An NVOCC acts as the carrier of the cargo being sent. In comparison, a Freight Forwarder doesn’t act as a carrier. A Freight Forwarder only acts in the behalf of the owner of the cargo to facilitate the passage of the cargo from the point of origin to the destination. They contract with carriers to pick the cargo up, board it on a ship or a plane, then another carrier to pick it up at the port; along with the entailing paperwork and documentation.

Freight Forwarders do not issue bills of lading but NVOCC’s do.  A bill of lading is also known as a contract of carriage and is a legal document that binds both parties to the terms agreed upon. A bill of lading is important as it holds the NVOCC liable if and when the cargo becomes lost or damaged while in transit where compensation is often necessary. A Freight Forwarder does not issue a bill of lading, so it is not liable for any damage or loss suffered while the cargo is in transit. It is the Freight Forwarder’s job, however, to get the bill of lading from the carriers that it is contracting. The liabilities of the Freight Forwarder only extend over possible errors on their part like incorrect or incomplete paperwork.

In Summary:

  • An NVOCC acts as the carrier while a Freight Forwarder does not
  • An NVOCC issues a bill of lading while a Freight Forwarder does not
  • An NVOCC is responsible for loss or damage while a Freight Forwarder is not

The thing I often see in my line of work are customers that mostly are concerned about domestic shipping but only occasionally have an International Import.  In order to save money and help to manage their domestic shipments, they employ a third party logistics company that is also a Freight Forwarder.   What they don’t realize is if their 3PL is a Freight Forwarder and not NVOCC, the 3PL will be reaching out to one or more NVOCC’s in order to handle the shipment, thus making a complex shipment even more so.  Next week I will discuss some important things to consider when choosing an NVOCC.

Please feel free to post comments!

Importance of Communication

The interesting thing that I see in my work as a freight forwarder is that with so many ways to communicate in today’s business world, it is amazing how many times and how easy it is to mis-communicate. Time, money, and endless headaches can be saved if you make sure everyone in a transaction supplies the other parties with the information they need for things to happen smoothly.

The first thing a logistics professional should do is to take stock of their contacts list.  It is important to understand not only who the key players are in the supply chain, but what their roles are.  There are many options out there for managing contacts, with Microsoft Outlook being one of the most popular.  But more important than just having the contacts stored in an easy place is the knowledge of how those contacts need to interact in order to make work flow. This knowledge has always been critical, but with international commerce it becomes imperative.

For instance, let’s say you work for a wholesale distributor of plumbing parts with strategic warehouses in Los Angeles CA, Norfolk, VA and Houston, TX.  Primarily, you import many of your goods from China, and use a company that is both a Customs Broker and Freight Forwarder to assist.  Let’s call them Freight Forwarder A.

Recently, your company has begun procuring galvanized pipe from Brazil.  Part of the decision to source the product from Brazil is because you developed a relationship with a Freight Forwarder that specializes in importation from South America.  They are Freight Forwarder B.  The caveat is that this company cannot clear the goods through U.S. Customs for you – they need to use a partner broker to do so.  You have the choice to either let them do this or to allow Freight Forwarder A to do it.

Because Freight Forwarder B specializes in South American freight, you elect to let Freight Forwarder B handle the Customs Clearance also via their partner.  This creates 2 separate supply chains and 2 separate lines of communication.  You need to make certain that not only you, but all your staff understand where and to whom specific documents need to be sent.  You don’t want Freight Forwarder A receiving customs documents from Brazil that Freight Forwarder B should be receiving.

Additionally, one thing that I see regularly is an organization’s decision to simply “copy all” parties in e-mail chains.  They copy in their vendor overseas, the manufacturer, the overseas agent, and the Freight Forwarder.  This creates a problem because those who don’t need all that information start ignoring the e-mail chain and may miss information they do need as a result.

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