chapter 11: strategic leadership chapter 18 managing international supply chains

Chapter 11: Strategic Leadership

Chapter 18

Managing international supply chains


Managing international supply chainsThis chapter covers the following aspects:

• Distribution channels

• International goods transport

• International trade

• Customs departments

• Security issues

• Free-trade agreements and free-trade zones

• International trade information requirements

• International trade documents

• Data to be submitted for international movement

• Incoterms


Distribution channels

• Choice of a distribution channel – Complexity of technical requirements – Lifespan of the product– Price of the product– Service requirements– Turnover

• Distributors*• Trading houses

* See Table 18.1


Distribution channels (continued)

• Government departments• Industrial buyers• Wholesalers• Retailers• Export agents*

* See Table 18.1


Differences between distributors and export agents


International goods transport • Sea transport – Overview of basic commercial ocean transport

practice– Liner ship operations • Container• Break-bulk (including ro-ro)• Bulk

– Tramp ship operations • Voyage• Time period


International goods transport (continued)

• Sea transport (continued)

– Private ship operations– Lighter-aboard ship operations (lash)

• Air transport – Background– Air parcel postal services– Express or courier services



• Air transport (continued)

– Passenger services• Combi aircraft• Conventional cargo hold below passenger

deck(s)

– Freight carriers

• Non-operating service providers – Airfreight forwarders • Overview• Freight handling• Guaranteed shipment time



• Non-operating service providers (continued)

– International ship freight forwarders– Non-vessel operating common carriers

(NVOCC)– Shipbrokers– Ship agents


World Trade Organization (WTO)

WTO is the only international organisation dealing with global rules of trade. Its aim is to ensure trade flows smoothly.

• Administers trade agreements

• Creates forum for trade negotiations

• Settles trade disputes

• Reviews national trade policies


Multilateral Trading System

• Series of trading agreements• Consensus-based – not majority• Flow into national agreements


Growth in global trade

Global trade has grown 6 per cent annually in last 50 years.


WTO advantages

• Helps keep trade flowing (removes trade disputes – a potential cause of wars)

• Disputes handled constructively

• Rules make trading simpler

• Free trade reduces costs

• Greater choice of products

• Trade raises incomes

• Stimulates economic growth

• More efficient

• Governments not lobbied as consensus

• Encourages good government


Customs departments

• Levy fees for imports (customs duties)

• Duties based on a Harmonised Tariff Code for each group of products

• Value of low or no import duties for growing trade (viz. Singapore)

• Statistical information captured to promote trade

• Security function: new addition


Security

• Theft and piracy – historical problems

• Terrorism new challenge – attacks since late 1990s around the world

• Balance now being sought between need to search everything and cost-effective trade

• No longer a domestic issue, but a global one


Security programmes

• First comprehensive programme – SOLAS (safety of life at sea) of IMO

• Added ISPS (international ship and port facility security)

• Mandatory – • Government sets security levels for vessels flying its flag; master of vessel must maintain the level of security on vessel.

• Must have a security communications method to shore.

• Port facilities must be secure and assessed.


Security programmes (continued)

• First was C-TPAT (customs-trade partnership against terrorism; USA 2001).

• WCO instituted SAFE Framework to identify reputable, responsible trading partners to allow safe and secure trade.

• From this came AEO (authorised economic operator; EU 2008):

• Company information

• Compliance to customs record

• Accounting and logistics systems

• Financial solvency

• Safety and security requirements


Other security programmes

• Australia – Frontline

• Singapore – Secure Trade Partnership

• Sweden – StairSec

• Jordan – Golden List Programme


Free-trade agreements

• EU – 38 countries and growing in one union• NAFTA - North American Free Trade Agreement • SACU – Southern African Customs Union


Free-trade agreements (continued)

• Lower tariffs between members• Foster trade between local countries• Often grow into an entity that promotes efficiency within the larger grouping of countries


Free-trade zones

• Allow goods to move into a zone with no customs duties and leave with no customs restrictions.• Data is still kept by customs and movement monitored.• In some cases incentives offered to create businesses or manufacturing facilities within such zones.


Trade information• Common data and correct documentation are required in order to facilitate trade.

• International movements of goods involve:

• Exporter

• Importer

• Shipping company

• Freight forwarder

• Land transport

• Banks

• Exporting country’s regulatory agencies

• Importing country’s regulatory agencies

• Regulatory agencies of intermediate countries that goods pass through


Customs duties

• Duties to enter a country are based on:• Harmonised Tariff Code, which attracts a certain percentage of the value of the goods

• The country where goods originate within an FTA, or with special anti-dumping tariffs

• Value of the goods

• Country of origin and country from which goods are shipped are not necessarily the same.


Harmonised Schedule or Tariff Code number• HS number is assigned in same way worldwide.

• Mug example:• Highest level – liquid receptacle

• Next level – drinking purposes

• Next level – personal use

• Next level – mug

• HS number is made up of digits for each level to build up a nine-digit HS or HTS number to group goods.


ECCN and licences

• ECCN: Export Control Classification Number – five-digit alpha-numeric code

• Identifies technology level and licensing requirements

• Licences: various goods require licences in various countries –

• Hazardous materials• Electronic goods


Country of origin

• Country in which the goods are made, or where the dominant value or value add is imparted to the goods

• May require local country certification

• Affects customs tariffs


International trade documents

• Transaction documents• Export documents• Inspection documents• Insurance documents• Financial documents• Import documents• Transport documents


Common documents in international trade

• Customs declaration or commercial invoice

• Packing list

• Shipper’s letter of instruction

• Bill of lading (or loading) (see next slide)

• Dangerous goods certificate

• Dock and master receipt


Bills of loading (BOLs)

• The following six BOLs are used:– Non-negotiable bill of lading– Negotiable bill of lading– Air waybill– Ocean bill of lading– Clean bill of lading– Claused bill of lading


Data for transactions base

• Exporter details

• Importer details

• For each HS Code:• Material descriptions• Quantity• Value of each goods item and total• Weight • Licensing requirements


Future requirements for data

• Extended information – more details for importer, exporter, buyer and seller, as follows:• Who receives the goods when first entering a country (ship to partner)

• Location and who stuffed the container/created the load

• Consolidator of the load (forwarder?)

• Plus shipping details for: • Vessel stow plan

• Container details and highest level of hazard for goods in the container


Incoterms

• Introduction• Use of Incoterms• Organisation of Incoterms 2000– The E term (see Figure 18.2)– The F terms (see Figure 18.3)– The C terms (see Figure 18.4)– The D terms (see Figure 18.5)

• Description of Incoterms 2000 – Table 18.3


The E term


F terms


C terms


D terms


Categories of Incoterms (1)Group Code Name of term

Group E Departure

EXW Ex Works (named place)

Group F Main carriage unpaid

FCA

FAS

FOB

Free Carrier (named place)

Free Alongside Ship (named port of shipment)

Free On Board (named port of shipment)



Group C

Main carriage paid

CFR

CIF

CPT

CIP

Cost and Freight (named port of

destination) Cost, lnsurance, and Freight (named port of destination)

Carriage Paid To (named place of destination)

Carriage and Insurance Paid To (named place of destination)



Group D

Arrival

DAF

DES

DEQ

DDU

DDP

Delivered at Frontier (named place)

Delivered Ex Ship (named port of destination)

Delivered Ex Quay (named port of destination)

Delivered Duty Unpaid (named place of destination)

Delivered Duty Paid (named place of destination)


Notes on Incoterms 2000

• Added wording• Appropriate contract• Customs of the port or trade• EDI• Export and import customs

clearance• EXW and FCA


Notes on Incoterms 2000 (continued)

• Inspection• Insurable interest• Packaging• Passing of risks and costs• Precise point of delivery

chapter 11: strategic leadership chapter 18 managing international supply chains

Documents

trade disputes

trade flowing

trade negotiations

growing trade

trade flows

strategic leadershipgrowth

strategic leadershipchapter

global rules of trade