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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!

INCO Terms

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.

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