Chapter 15

International Logistics

International Logistics

I. International Logistics - the designing and managing of a system that controls the flow of materials into, through, and out of the international corporation.

– Major decision areas:

locating plants and warehouses; choice of transportation mode; managing inventory; packaging.

The Impact of International Logistics

• Logistical costs are 10% to 30% of the total landed cost of an international order.

• Factors necessary for the use of logistics as a competitive tool:– Close collaboration with suppliers and customers– Technologically advanced information processing

and communication exchange capabilities– An integrated business infrastructure

International Transportation Issues• Transportation infrastructure

– Roads, rail lines, airports, seaports, pipelines

• Availability of transportation modes– Overland shipping, ocean

shipping, air shipping

• Choice of modes– Transit time, predictability,

cost, noneconomic factors

• Noneconomic Factors– Government involvement,

the UNCTAD and the 40/40/20 concept

International Logistics

II. Inventory Management Considerations- Carrying costs

- Order cycle time

- Order cycle consistency

- Difficulty in applying service rules

International Inventory Issues

• Inventory carrying costs can be up to 25% of the value of an inventory

• Just-in-Time policies minimize inventory volume by making it available when needed.

• Inventories assist in the movement of products.

• Factors in deciding on the level of inventory to maintain:– Order cycle time– Desired level of customer service– Use of Inventory as a strategic tool

Order Cycle Time

• The total time that passes between the placement of an order and the receipt of the merchandise.– Length of the total order cycle

• Longer cycle in international marketing than domestic

– Consistency of the order cycle• More complicated delivery mode reduces consistency

• Altering cycle times– Change transportation methods– Change inventory locations– Change ordering process

International Logistics

III. Packaging Issues1) Responsibility of the shipper

2) Climate

3) Shape and weight

4) Environment

IV. Methods of Payment

• Letters of Credit

- Revocable- Irrevocable

• Cash in advance

• Open Accounts

• Forfaiting

Getting PaidForeign Commercial Payments

Who’s Responsible for CostsUnder Various Terms?

* Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes controversial.

** The seller has responsibility to arrange for consular invoices (and other documents requested by buyer's government). According to official definitions, buyer pays fees, but sometimes as a matter of practice, seller included in quotations.

Export packing* Buyer Seller Seller SellerInland freight Buyer Seller Seller SellerPort charges Buyer Buyer Seller SellerForwarder's fee Buyer Buyer Buyer SellerConsular fee Buyer Buyer Buyer Buyer **Loading on vessel or

plane Buyer Buyer Buyer SellerOcean freight Buyer Buyer Buyer SellerCargo insurance Buyer Buyer Buyer SellerCustoms duties Buyer Buyer Buyer BuyerOwnership of When goods on When goods When goods When goods

goods passes board an inland unloaded by alongside on board aircarrier (truck, rail, inland carrier carrier, in or oceanetc.) or in hands hands of air carrier at

portof inland carrier or ocean carrier of shipment

FOB (Free on FOB (Free on FAS (Free CIF (CostBoard) Inland Board) Inland Along Side) Insurance,Carrier at Carrier at Vessel or Freight) atFactory Points of Plane at Port Port of

Shipment of Shipment Destination

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The Exporting Process

Licenses

General

Validated

Documentation

Export declaration

Commercial invoice

Bill of lading

Consular invoice

Special certificates

Other documents

Leaving the Exporting Country

Physical Distribution

International shipping

and logistics

Packing

Insurance

Entering the Importing Country

Tariffs, Taxes

Non-tariff Barriers

Standards

Inspection

Documentation

Quotas

Fees

Licenses

Special certificates

Exchange permits

Other barriers

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Export Administration Regulations (EAR)

1. A new country and commodity classification system has been devised, making it the exporter’s responsibility to select the proper classification number for an item to be exported.

2. The exporter must decide if there are end-use restrictions on the items, such as their possible use in the development of nuclear, chemical, and biological weapons.

3. The exporter now has the responsibility to determine the ultimate end customer and ultimate end uses, regardless of who may be the initial buyer, or face the legal consequences of doing business with unauthorized trading partners.

4. A special category for the control of encryption-related products has been established.

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HomeCountry Channel Members

ManufacturerManufacturer

Export ManagementCompany

Export ManagementCompany

Export AgentExport Agent DirectDirect

Import Intermediary Import Intermediary

Local Wholesaleror Agent

Local Wholesaleror Agent

Retailer Retailer

ConsumerConsumer

Industrial User

Industrial User

ForeignCountry Channel Members

Structure of International Distribution Systems

International Marketing Channel Alternatives