Two blue chip players in today’s global supply chain marketplace announced that they plan to introduce a “transformational” service designed to expedite ocean cargo shipping and mitigate risk.
It stands to reason that with the election of Donald Trump as the next President of the United States, effective next month, interesting times are certainly heading our way.
So much has been written about internet shopping and consumer habits, but trends in the way we purchase goods continue to evolve at such a rapid pace I am certain this topic will continue to be discussed for the foreseeable future.
Living in North Carolina and graduating high school at the tail end of the Reagan years, I had a vision of how I wanted to live. I imagined myself walking out to my massively hulking, gas-guzzling Oldsmobile Rocket 88 with a saddle bag over my shoulder. A modern-day cowboy, I would chuck the bag into the backseat, slide behind the wheel, fire the engine and just head out west.
I didn’t own a saddlebag. I did not even think very clearly of how to get one. I vaguely remember happening into an equestrian gear store and inquiring about it only to learn that they had no such item but could probably special order one. But there weren’t even any catalog pictures to see. This was long before the birth of the “man purse” phenomenon.
So I filed it away in the back of my mind until one day around 1997 or 8 I happened to be Christmas shopping in a Sharon Luggage store when lo and behold, they had one. It was around $125 and with all the gifts I still needed to buy I had no way of purchasing it then. But I scraped and saved and about a month later went back…and it was gone. Feeling forlorn, I to asked one of the sales associates about it. She said, “give me a minute.” She went to the back for what seemed an agonizing length of time but when she reappeared, she had it in her hands. She literally said, “I think this has your name on it, seems like it’s been here forever and no one was interested in it. They were planning on sending it back to our vendor for a credit toward something else.” I plopped my money down and left with the bag a happy man.
Fast forward another couple of years and I landed a traveling job as a purchaser. Over the next 5 plus years I journeyed back and forth along a tremendous amount of the continental US, touching at least 42 states. Long gone was the gas guzzling Oldsmobile. Instead, a massive cargo van became my mode of transit. The saddle bag went with me on each and every trip.
That’s a very personal story but the real point is this: other than a house, a car, boat or similar major purchase, would anyone wait so long to buy a desired item with the access to information and online commerce we have today? A quick Google search for saddlebags nets me at least 2 dozen excellent options without even really digging very much.
With the internet, today’s savvy shoppers can research the products they want infinitely faster and more cost efficiently than ever before. No longer do we have to go from store to store in search of that perfect item when online browsing is available from a smart phone. Additionally, something I find fascinating is still the vital importance of word of mouth. Many a time in recent years I have had friends, co-workers and family give me incredibly detailed reasons for why they purchased this product over that one. (This often occurs in social settings when I have not asked for advice about the product in question.) With so many choices at our fingertips we are able to make incredibly well-educated decisions about the products we buy.
Still, do we research where all the products we purchase actually come from? As much as I cherish the saddlebag I waited so long for, I couldn’t tell you where it was produced. As consumers, I don’t think anyone would admit that they want to purchase items produced in a sweatshop. But truthfully, we simply either don’t have time to meticulously research provenance thoroughly or, if it’s something we want badly enough, we’ll buy it regardless. Only later do we wonder, where this was made and by whom?
Till now, we have had to rely on either government or independent non-profit agencies to monitor where and how products are made. These amazing agencies have made substantial inroads regarding labor rights. Among them are: The Bureau of International Affairs, within the US Department of Labor, International Organization for Standardization (ISO) and the Institute for Global Labour and Human rights, to name just a few.
But current-day supply chains can adapt quickly. Companies that source their products from overseas can often expediently change the manufacturer. With the downturn in the Chinese economy late in 2015 and early 2016, the competition for production has been immense not just in China but all over Southeast Asia. In addition, major retailers like Wal-Mart continue to work with distributors. These distributors may source the product from many different manufacturers.
Knowing this, and with the importance of National Security, Customs Border Protection implemented ISF (Import Security Filings) in November 2008. ISF is a mandatory Homeland Security sponsored program that all importers to the United States must adhere to when shipping goods into the USA. ISF informs U.S. Customs of all details of an import shipment, including origin, before it arrives within the borders of the USA. This program is mandatory for all inbound ocean shipments to the United States.
There are 10 data elements that have to be provided and confirmed by the importer and 2 data elements that the steamship line is responsible for providing. The Importer is responsible for providing the following:
- Seller – Name and address of the last known entity by whom the goods are sold or agreed to be sold. If the goods are to be imported otherwise than in pursuance of a purchase, the name and address of the owner of the goods must be provided. The seller information is generally available on the commercial invoice.
- Buyer – Name and address of the last known entity to whom the goods are sold or agreed to be sold. If the goods are to be imported otherwise than in pursuance of a purchase, the name and address of the owner of the goods must be provided. The buyer information is generally available on the commercial invoice. If the goods are sold in transit and the buyer information changes, the ISF must be amended.
- Importer of Record number/FTZ Applicant ID number – The IRS number, EIN, Social Security number, or Customs assigned importer number of the entity liable for payment of all duties and responsible for meeting all statutory and regulatory requirements incurred as a result of importation. For Foreign Trade Zone shipments, the IRS number of the party who files the documentation must be reported. If the importer of record on the entry is not the same as the importer that files the ISF, any ISF penalty would be against the party whose bond is posted for the ISF.
- Consignee number – The IRS number, EIN, Social Security number, or Customs assigned imported number of the individual or firm in the U.S. on whose account the merchandise is shipped.
- Manufacturer (or supplier) – Name and address of the entity that last manufacturers, assembles, produces, or grows the commodity. OR the name and address of the party supplying the finished goods in the country from which the goods are leaving. Remember that for textiles, the broker must have the actual manufacturer for entry purposes.
- Ship to party – Name and address of the first deliver-to party scheduled to physically receive the goods after the goods have been released from Customs custody. Customs believes this information will give predictability to targeting. If the ship to party is unknown, the facility where the goods will be unladen (e.g., pier) can be reported. If there are multiple delivery stop offs, only the first one is reported.
- Country of origin – Country of manufacture, production, or growth of the article, based upon the import laws, rules and regulations of the U.S. This is the same information declared on the Customs entry.
- Harmonized Tariff Schedule number – Tariff number under which the article is classified in the HTSUS. The final rule requires 6 digits, but Customs will accept 8 digits or the full 10 digit HTS number. This means all goods will need to be pre-classified.
- Container stuffing location – Name and address(es) of the physical location(s) where the goods were stuffed into the container. For break bulk shipments, the name and address(es) of the physical locations(s) where the goods were made “ship ready” must be provided. A “scheduled” stuffing location will be acceptable, but once the actual stuffing location is known, the ISF must be amended prior to arrival. The broker does not need to report which container was stuffed where (the container number is not required to be reported with the ISF).
- Consolidator (stuffer) – Name and address of the party who stuffed the container or arranged for stuffing of the container. For break bulk shipments, the name and address of the party who made the goods “ship ready” or the party who arranged for the goods to be made “ship ready” must be provided.
Lastly, the steamship line is responsible for providing the vessel stow plan and handling any container status messages.
Importers often perceive the ISF process as being one more regulatory piece of red tape that has to be handled in order to get their goods into the U.S. Freight Forwarders and Customs Brokers have used it as an additional service they can provide and produce extra revenue. But the great benefit to the American consumer is that each imported good purchased can be backtracked accurately to the factory from which it was produced. Not only that, but information about vendors, co-loaders, freight forwarders and other key elements of the supply chain can also be made available. Think of the monumental amount of data that ISF alone has generated over the last 8 years!
So this leads me to think that ideally, Import Security Filings and other pertinent Supply Chain data could greatly benefit from Blockchain technology. Per Blockchain Revolution :
“Blockchain is the technology behind crypto currencies like Bitcoin, and it is ushering in nothing less than the second era of the Internet. Blockchains establish the rules—in the form of globally distributed computations, heavy-duty encryption, and mass collaboration—that ensure the integrity of the data traded among billions of devices without going through a trusted third-party. Trust is hard-coded into the platform. It acts as a ledger of accounts, a database, a notary, a sentry, and clearing house, all by consensus, thereby allowing us to exchange things of value directly. No untrustworthy middlemen. That’s why we call it the Trust Protocol.
Although many opportunities for the blockchain require a digital currency, Bitcoin is only one application of this great innovation in computer science. The blockchain can hold any legal document, from deeds and marriage licenses to educational degrees and birth certificates. Call it the World Wide Ledger. It enables smart contracts, decentralized autonomous organizations, decentralized government services, and transactions among things. The Internet of Everything needs a Ledger of Everything: the blockchain is a truly open, distributed, global platform that fundamentally changes what we can do online, how we do it, and who can participate.”
It will be interesting to see if ISF can be incorporated with Blockchain technology, allowing us to always be able to make conscientious choices about the products we purchase along with where and how they were produced. Blockchain technology basically was not even available when ISF was introduced. So changing to a blockchain format could be time-consuming and expensive. But I think it would probably be worth it as the information could be made readily available at the point of purchase.
For an additional excellent article about how Blockchain is transforming Supply chain, please refer to Adam Robinson’s article: What Is Blockchain Technology, and What Is Its Potential Impact on the Supply Chain?
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
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.
A couple of months back I posted an entry regarding the importance of marine insurance. An additional and very important reason I failed to mention is that the proper Marine Insurance policy covers the freight against theft or damages during the intermodal portions of the shipment as well. In other words, the word “Marine” in Marine Insurance may lead some to believe it is only for the ocean portion of the shipment.
A case in point would be if you are importing an LCL (Less than Container Load) shipment to Atlanta from Shenzhen, China. Let’s say that the routing will be Shenzhen to Atlanta via Los Angeles. In this scenario, the freight will be stuffed into a container in Shenzhen along with other customers’ freight. Once it arrives in Los Angeles, the container will be drayed to a CFS , where it will be unloaded. Then it will be stuffed either into another container, or trucking van that can be loaded onto a rail flat car. The freight is then moved via rail to Atlanta. Once in Atlanta, it will be delivered to another CFS, again unloaded and finally (once Customs Cleared) made available for pick up by the delivering trucker or the consignee.
As you can see, the freight makes several stops along the way and is handled several times. This increases the chance for damage or theft to occur. We tend to not think about theft as a possibility, but there is evidence that freight robberies are on the increase. Freight Watch International has published their report titled 2013 Global Cargo Theft Threat Assessment. One of the first things that jumps out in the report is that the U.S. Russia, Mexico, Brazil and South Africa are most at risk for cargo theft.
An incredibly unfortunate and ironic thing is that your freight may not be what the thief is attempting to steal! You have to keep in mind that if your freight is in a container with someone else’s high value electronics, the entire container could be taken and your freight just dumped somewhere. So unless it is just very easy for the freight to be written off as a loss and/or get a replacement shipment I would strongly recommend purchasing the insurance.
Please feel free to post comments!
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!
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.
- 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!
“Going green” is a catch phrase that so many marketers have used in recent years because the public is growing more conscious of environmental issues. After all, we all want to do what is best to be sure our planet will be here for generations to come, right? Most cities across the country have implemented recycling programs. Many building contractors have embraced the concept of using recycled materials in both commercial and family home construction.
But what does this interest in “green” mean for logistics?
Some green improvements are easy and actually save businesses money. Carriers are already involved in the green movement as necessity, with things like improving fuel economy. Small package companies like UPS have reconfigured drivers’ routes to maximize right turns. The advantage here is that it increases the chances that a driver can make a “right on red,” thus avoiding long idling times. Truckload carriers have added skirts and rear “trailer tails” to greatly reduce fuel costs. Ocean carriers have also implemented “slow steaming” techniques to save greatly on fuel costs.
But other green improvements are very costly to implement, or are government mandated. And things like moving freight at a slower pace to save fuel is simply not accepted by a society that still expects goods to be delivered at a faster and faster rate.
A case in point is a recent report released by the California Cleaner Freight Coalition outlining ways to overhaul the state’s freight system to improve air quality standards. You can read a summary of the report here: Moving California Forward Executive Summary.
The report is very thorough in outlining ways to improve fuel efficiencies and reduce emissions, but has very little data about the costs these programs will involve. The U.S. is going to continue to import goods for the indefinite future, so how best to implement green logistics while keeping costs low enough to maintain a still struggling economy?
I hope the New Year is getting off to a great start for everyone. This week I would like to discuss INCO terms. If you are new to international shipping or a veteran, it is always a good idea to review these terms.
INCO Terms are internationally recognized terms of sale used to determine responsibility for shipping arrangements and transfer of goods shipped in international trade. These standard terms help eliminate or reduce legal disputes and misinterpretation of responsibilities to the export or import transaction. Per the International Chamber of Commerce, they “help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers.”
The terms are universal as they apply to all trading nations under all circumstances. They were first published in 1936 and have been updated 8 times, the most recent in 2010. The terms apply to both imports and exports. The terms are abbreviated to 3 letter codes broken down into 4 categories. The first letter of the code determines the category:
E Terms. The seller makes the goods available at the seller’s facility.
F Terms. The seller is required to deliver the goods to a carrier specified by the buyer.
C Terms. The seller contracts for carriage, but does not assume the risk of loss or damage to the goods after delivery to the carrier.
D Terms. The seller is responsible for all costs and risks required to bring the shipment to the destination country.
Additionally, some of the terms are rules for any mode of transport where others only apply to Sea and Inland Waterway transport.
Determining which term to use is a vital component of the sales process. A lot of the customers I work with often fail to grasp the importance of them. Most shippers in the U.S. are very familiar with the North America terms: FOB Shipping Point and FOB Destination. But they often forget to take into account that International shipments are handled by many more entities. Thus, who pays for what part of the shipment can become confusing.
Ultimately, it comes down to the level of trust that exists between the parties involved. Typically, for export shipments, the term DDP(Delivered Duties Paid) entails the most liability for the shipper. But companies may have their reasons for handling shipments in this manner.
For example, if an exporter here in the U.S. is very familiar with the company that it is shipping to in Germany, then shipping under DDPmay make complete sense. The company receiving the shipment may be a subsidiary or sister company. These two entities may have a complex accounting system by which they debit and credit each other internally for some or all of the shipping costs. But they prefer the Bills of Lading to be under DDP.
More often, however, in the case of a company here in the U.S. working with a customer outside the U.S., the customer may make demands of the seller as terms of the sale. They may state that they will not purchase the goods unless the seller handles all freight charges. Many times I have dealt with an exporter that has made this mistake, only to learn that their customer in the foreign country will allow the freight to sit in Customs limbo while they attempt to finalize a sale of the goods to their customer. Meanwhile, the freight starts to rack up storage charges and other fees that the U.S. Exporter is responsible for paying.
One way I advise customers to avoid this situation is to have their customer use brokers and trucking companies in their own domicile country. Have them get quotes for expected costs and offer to make this part of the sale negotiation. Perhaps they can offer the customer a credit of $2000 to handle the trucking and Customs clearance themselves. Then set up the Bills of Lading as DAP (Delivered At Place). This way, the seller’s liability ends once the goods are delivered to the named port or terminal.
One last thought regarding INCO terms is that the term is technically not complete without a “place” tied in with it. In other words, the term has to list the city, port or city to be complete. As Thomas Cook mentions in his book, Mastering Import & Export Management, “offering the INCO term without the ‘named place’ is only addressing part of the equation and leaving out a very integral component, leading to confusion and much frustration.”
If the seller has not taken into account the place of where responsibility lies, they may find themselves paying more of the freight charges than originally intended.