International Supply Chain and Logistics

International Supply Chain Management

There has been a tremendous evolution over the past two decades; competition has changed dramatically due to the opening up of trade barriers regionally and globally. In both developing and developed countries local companies are now being exposed to increased competition from a new set of competitors that can exploit the comparative advantage of several countries simultaneously. Aggravating the local companies’ problems is the growing volatility of the business environment because of the larger number of international players, rapid changes in technology and shorter product life cycles.

Firms have begun to implement two strategies in order to remain competitive

• Seeking supplies and productions on a global scale
• Reducing value-added operations in-house via outsourcing and strategic alliances

Multinationals can take advantage of the unique conditions existing in the countries by sourcing internationally, such as low wages, raw material availability, and proximity to markets. Also, this distributed system gives firms the flexibility to react to the increased volatility in technology and marketplace. It requires transformation of the organization and proper management of supply chains to be successful.

Till few years back, American firms took their ideas from the US and transplanted them to overseas locations, whereas Japanese firms invested in operations overseas to tap the local cost, material availability and quality advantages. The European firms set-up multi-domestic operations and let them develop their own products, services and supply system. Nowadays, most large American, Japanese and European Multinational Corporations (MNCs) are now moving toward the twin strategy of global desegregation and supply chain management. With all the efforts being put into developing this system companies keep evolving new strategies for Supply Chain Management.

International Commercial terms

International Commercial Terms, known as “Incoterms”, are the terms internationally accepted defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. These terms do not cover ownership or the transfer of title of goods. It is crucial to agree on an Incoterm at the start of a negotiation/quotation of a sale, as it will affect the costs and responsibilities involved in shipping, insurance and tariffs.

EX Works

One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller’s factory or warehouse and “delivery” is accomplished when the merchandise is released to the consignee’s freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork.

FOB (Free On Board)

One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. “Delivery” is accomplished when the shipper/seller releases the goods to the buyer’s forwarder. The buyer’s responsibility for insurance and transportation begins at the same moment.

FCA (Free Carrier)

For this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. “Delivery” is accomplished at a predetermined port or destination point and the buyer is responsible for Insurance.

FAS (Free Alongside Ship)

In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS require the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. “Delivery” is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation.

CFR (Cost and Freight)

CFR was formerly was known as CNF (C&F) defines two distinct and separate responsibilities-one is dealing with the actual cost of merchandise “C” and the other “F” refers to the freight charges to a predetermined destination point. It is the shipper/seller’s responsibility to get goods from their door to the port of destination. “Delivery” is accomplished at this time. It is the buyer’s responsibility to cover insurance from the port of origin or port of shipment to buyer’s door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder.

CIF (Cost, Insurance and Freight)

This arrangement is similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. Delivery is accomplished at the port of destination.

CPT (Carriage Paid To)

In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit.

CIP (Carriage and Insurance Paid To)

CIP is primarily used for multimodal transport. Because it relies on the carrier’s insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, Freight Forwarders often act in effect, as carriers. The buyer’s insurance is effective when the goods are turned over to the Forwarder.

DAF (Delivered At Frontier)

Here the seller’s responsibility is to hire a forwarder to take goods to a named frontier, which usually a border crossing point, and clear them for export. Delivery occurs at this time. The buyer’s responsibility is to arrange with their forwarder for the pickup of the goods after they are cleared for export, carry them across the border, clear them for importation and effect delivery. In most cases, the buyer’s forwarder handles the task of accepting the goods at the border across the foreign soil.

DES (Delivered Ex Ship)

It is the seller’s responsibility in such transactions to get the goods to the port of destination or to engage the forwarder to move the cargo to the port of destination. Delivery occurs at this time. Any destination charges that occur after the ship is docked are the buyer’s responsibility.

DEQ (Delivered Ex Quay)

Under this arrangement, the buyer/consignee is responsible for duties and charges and the seller is responsible for delivering the goods to the quay, wharf or port of destination. In a reversal of previous practice, the buyer must also arrange for customs clearance.

DDP (Delivered Duty Paid)

DDP terms tend to be used in interposal or courier-type shipments. Whereby, the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee’s door. It is the shipper/seller’s responsibility to insure the goods and absorb all costs and risks including the payment of duty and fees.

DDU (Delivered Duty Unpaid)

This arrangement is similar to DDP, except for the fact that the buyer is responsible for the duty, fees and taxes.

Freight Forwarder as an important agent in Logistics

Freight forwarder, forwarder, or forwarding agent is a person or company that organizes shipments for individuals or other companies and may also act as a carrier. A forwarder mostly acts only as an agent and is often not active as a carrier, that is, as a third-party logistics provider that dispatches shipments via asset-based carriers and that makes bookings or otherwise arranges space for these shipments. Carrier types include ships, airplanes, trucks, and railroads. Freight forwarders generally arrange cargo movement to an international destination. Often referred to as international freight forwarders, they have the expertise that allows them to prepare and process the documentation and perform related activities pertaining to international shipments. Carriage information or documentation reviewed by a freight forwarder is the commercial invoice, shipper’s export declaration, bill of lading and other documents required by the carrier or country of export, import, or transshipment. The e-filing of documents have made the process paperless with exception in certain cases.