Transportation Strategy SCMN 4780 Transportation Strategy – SCMN 4780 Shipper’s Perspective Global Trade

Transportation Strategy Transportation Strategy SCMN 4780SCMN 4780

Transportation Strategy – SCMN 4780 Transportation Strategy – SCMN 4780

Shipper’s Perspective Shipper’s Perspective Global Trade Global Trade

Transportation Strategy Transportation Strategy SCMN 4780SCMN 47802Shipper’s Perspective Shipper’s Perspective

International Trade for US Companies International Trade for US Companies


Reasons for Increased Global Trade Reasons for Increased Global Trade • Grow the business through trade in new markets • Diversify financial performance over various economies• Establish brand identity and viability in foreign markets• Improve profitability by reducing supply cost (outsourcing) • Superior quality of products in foreign market • Access to unique materials and/or new technologies • React to buying / selling patterns of competitors• Improve plight of downtrodden nations / people

33Shipper’s Perspective Shipper’s Perspective


0

500

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4500

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Exports Imports

US Global Trade ($B)US Global Trade ($B)


-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Exports Imports Balance

US Global Trade ($B)US Global Trade ($B)


-3000

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exports Imports Balance

2000 – 2010 US Global Trade $B2000 – 2010 US Global Trade $B


Key Barriers to Successful Global TradeKey Barriers to Successful Global Trade

• Lack understanding of import procedures / documentation• Lack knowledge of foreign business practices• Logistical, political and financial risks• Language and cultural differences• US domestic market nationalism• Complex contract negotiations• Difficulty in making engineering changes • Longer supply chain lead-times (vs. LEAN)


2010 Top 15 US Trading Countries ($B)

Top US Trade PartnersExports

($B)% of Total Cum %

Imports ($B)

% of Total Cum %

Global Trade ($B)

% of Total Cum %

1 Canada 249 19.5% 19.5% 277 14.5% 14.5% 526 16.5% 16.5%

2 China 92 7.2% 26.7% 365 19.1% 33.6% 457 14.3% 30.8%

3 Mexico 163 12.8% 39.4% 230 12.0% 45.6% 393 12.3% 43.1%

4 Japan 61 4.8% 44.2% 120 6.3% 51.9% 181 5.7% 48.8%

5 Germany 48 3.8% 48.0% 83 4.3% 56.2% 131 4.1% 52.9%

6 United Kingdom 49 3.8% 51.8% 50 2.6% 58.8% 99 3.1% 56.0%

7 South Korea 39 3.1% 54.9% 49 2.6% 61.4% 88 2.8% 58.8%

8 France 27 2.1% 57.0% 39 2.0% 63.4% 66 2.1% 60.8%

9 Taiwan 26 2.0% 59.0% 36 1.9% 65.3% 62 1.9% 62.8%

10 Brazil 35 2.7% 61.7% 24 1.3% 66.6% 59 1.8% 64.6%

11 Netherlands 35 2.7% 64.5% 19 1.0% 67.6% 54 1.7% 66.3%

12 India 19 1.5% 66.0% 30 1.6% 69.1% 49 1.5% 67.9%

13 Singapore 29 2.3% 68.2% 18 0.9% 70.1% 47 1.5% 69.3%

14 Venezuela 11 0.9% 69.1% 33 1.7% 71.8% 44 1.4% 70.7%

15 Saudi Arabia 12 0.9% 70.0% 31 1.6% 73.4% 43 1.3% 72.1%

Total Trade ($B) 1278 1912 3190

US Top Trading Partners – 2010 US Top Trading Partners – 2010



0 50 100 150 200 250 300 350 400 450 500 550 600

Saudi Arabia

Venezuala

Singapore

India

Netherlands

Brazil

Taiw an

France

South Korea

UK

Germany

Japan

Mex ico

China

Canada

Import Export

2010 Top 15 US Trading Countries ($B)2010 US Top Trading Partners 2010 US Top Trading Partners


Domestic Transportation Network Domestic Transportation Network

SUPPLIER CUSTOMERPRODUCER

(Shipper)

Inbound Transportation

Outbound Transportation

Shipper’s Perspective Shipper’s Perspective 1010

Interstate Border

Crossing

Interstate Border

Crossing


Border Crossing ComparisonBorder Crossing Comparison

Phoenix

San Antonio

Monterrey


Global Transportation Network Global Transportation Network

SUPPLIER CUSTOMERPRODUCER

(Shipper)

Inbound Transportation

IMPORT

Outbound Transportation

EXPORT


US Border Crossing

US Border Crossing

Typical modes of transport between Mexico and US?

U. S. Points of Entry U. S. Points of Entry



Globalizing the Supply ChainGlobalizing the Supply Chain

extraction

conversion

manufacture

US Assembly Operation

distribution

retail

consumption

Shipper’s Perspective Shipper’s Perspective

What management changes are required by the shipper when logistics linkages cross the

border of a sovereign country?

?


Responding to the need for revenue following the American Revolutionary Way, the First United States Congress passed and President George Washington signed the Tariff Act of July 4, 1789, which authorized the collection of duties on imported goods. Four weeks later, on July 31st, the fifth act of Congress established the United States Customs Service and its ports of entry.

In 2003, the United States Customs Service was re-commissioned to a subsidiary of the US Department of Homeland Security as the Bureau of Customs and Border Protection, Immigration and Customs Enforcement. US Customs Service has three major missions: (1.) collecting tariff revenue, (2.) protecting the U.S. economy from smuggling and illegal goods, and (3.) processing people and goods at ports of entry.

US Customs & Border Protection (CBP) US Customs & Border Protection (CBP)


• CBP has a workforce of over 58,000 employees including officers and agents, agriculture specialists, aircraft pilots, trade specialists, mission support staff and canine enforcement officers and agents

• 1,000 Air and Marine Interdiction Agents prevent people, weapons, narcotics, and conveyances from illegal entry by air and water

• 2,500 employees in revenue positions collecting >$30 billion annually in entry duties and taxes through the enforcement of trade and tariff laws; CBP collections are 2nd largest revenue source to US gov’t

• Currently, US has 320+ officially designated ports of entry (POE) and an additional 14 pre-clearance locations in foreign countries

• Responsible for container security through identifying and inspecting foreign cargo in its mother country before it is imported into US

US Customs & Border Protection (CBP) US Customs & Border Protection (CBP)


CBP is authorized to search inbound and outbound shipments. It uses targeting to carry out its mission. CBP is required to seize all merchandise that is stolen, smuggled or clandestinely imported into the United States.

Merchandise may be seized and forfeited if:• Import is prohibited or restricted by law • Importer does not have proper license or documentation • Imported goods are not properly packaged or labeled • Merchandise does not have proper country of origin markings • Merchandise is subject to quarantine

The Tariff Act is used for civil and criminal penalties for non-compliance in the importation of goods. It prescribes penalties against any person who imports, attempts to import, or procures merchandise by unlawful means. Penalty provisions include FRAUD, GROSS NEGLIGENCE and NEGLIGENCE.

US Customs & Border ProtectionUS Customs & Border Protection


The HTS lists tariffs charged for all products imported into the US. HTS classifies goods according to the international harmonized commodity coding and classification system established / maintained by the World Customs Organization.

Virtually all countries base their tariff schedules on this system, making it easier to conduct international trade.

The HTS generally classifies goods based on their level of processing, with raw materials appearing first and highly processed goods last.

US Harmonized Tariff Schedule (HTS)US Harmonized Tariff Schedule (HTS)


US Harmonized Tariff Schedule (HTS)US Harmonized Tariff Schedule (HTS)


00


Tariff Application Tariff Application

Source: International Tropical Timber Organization

Tariff Rates in Developed Markets for Timber Products


ININternationalternational COCOmmercialmmercial TERMS TERMSWhat are INCOTERMS? A series of pre-defined commercial terms published by the International Chamber of Commerce widely used in international commercial transactions. A series of three-letter trade terms related to common sales practices. The rules are intended to clearly communicate the tasks, costs and risks associated with the transportation and delivery of goods. Incoterm rules are accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce / remove uncertainties arising from different interpretation of the rules in different countries.

Incoterms Handout



International Terms of Trade International Terms of Trade • Determine the seller’s and buyer’s obligations concerning

responsibilities and charges for international transportation of goods from the seller’s premises to the buyer’s place

• Objective is to avoid confusion and misunderstanding addressing the following questions: → Who is responsible for what? → Who is going to pay for what?→ Where do responsibilities begin / end?→ Who assumes the risk?


Buyer seeks to purchase container of 24” LCD monitors from a Taiwan supplier. The seller quotes a price of $225 US per monitor, FAS, Port of Kaoshiung, Incoterms 2010. What is seller responsible for?

Packing the goods for export and loading the containerAll transportation costs of getting the monitors to the portDropping the container at the portClearing the goods for exportLoading the container on the shipPaying for the ocean transportPaying for the insurance on the international voyageAll costs related to unloading the container from the shipClearing the goods through U.S. CustomsAll transportation costs of getting monitors from the port to the destination

Application of IncotermsApplication of Incoterms

Another supplier in India offers a similar quality monitors. Seller quotes buyer a price of $240 US per monitor, CIF, Port of Savannah, Incoterms 2010. What is the seller responsible for?

Packing the goods for export and loading the containerAll transportation costs of getting the monitors to the portDropping the container at the portClearing the goods for exportLoading the container on the shipPaying for the ocean transportPaying for the insurance on the international voyageAll costs related to unloading the container from the shipClearing the goods through U.S. CustomsAll transportation costs of getting monitors from the port to the destination

Application of IncotermsApplication of Incoterms


Customs DocumentationCustoms Documentation

Why is customs documentation (or paperwork) important?• Customs Forms: invoice, bill of lading, certificate of origin, certificate

of insurance, letter of credit• Documentation drives the entire export process• Documentation results in transfer of information in a timely fashion to

ensure uninterrupted freight flow• Keys to success:

1. use the correct form 2. available in advance of shipment3. accuracy is essential

→ impacts application of tariffs→ errors create delays and costs



Customs DocumentationCustoms Documentation



Documentation and SecurityDocumentation and Security• US Customs & Border Protection has established smart borders that

increase security while facilitating the movement of legitimate trade• Regulation – 19 CFR Part 4 or “24 Hour Rule”

→ Ocean Vessel – present 24 hours prior to lading at a foreign port → Air / Courier – present 4 hours prior to arrival in US or at "wheels

up" for the aircraft → Rail – present 2 hours prior

to arrival at US entry port → Truck – present 1 hour prior

to arrival in US or ½ hour for Free And Secure Trade or FAST participants


Ocean Freight ChallengesOcean Freight Challenges

roll, pitch, yaw, surge, sway, heave

Why is ocean freight protection an issue? There are numerous perils are created by longer distance travel, extensive product handling and different conditions.


Handling / Stowage ProblemsHandling / Stowage Problems


Pirates / Thieves on High SeasPirates / Thieves on High Seas

Areas of concern include the South China Seas, West Africa, South America (particularly Brazil), the coasts of the Arabian Peninsula, The Philippines, Indonesia, Somalia and, with the chaos in Albania, even parts of the Mediterranean. Over 200 crew have been assaulted, taken hostage or injured in attacks this year, and eight killed. The figures also show that pirates are more likely to be armed with guns than in previous years.


Fortuitous Losses at SeaFortuitous Losses at Sea

Ship’s master (captain) has the absolute right to jettison cargo when he reasonably believes it to be necessary, and the owners of the ship incur no liability.


Fortuitous Losses on LandFortuitous Losses on Land



Import / Export Management Challenges Import / Export Management Challenges

Documents

Transportation Strategy SCMN 4780 Transportation Strategy – SCMN 4780 Shipper’s Perspective Global Trade