Solving international transportation problems.The recent resurgence re·sur·gence
1. A continuing after interruption; a renewal.
2. A restoration to use, acceptance, activity, or vigor; a revival. in international trade has provided U.S. firms with a major opportunity to expand sales through exporting. This is particularly true for small and medium sized firms which have traditionally limited their marketing efforts to domestic markets. However, in order to take advantage of expanding foreign trade, infrequent in·fre·quent
1. Not occurring regularly; occasional or rare: an infrequent guest.
2. and small volume producers must first dispel a major myth associated with distributing products to foreign customers. This myth is that the complexities of international distribution make it very difficult for smaller firms to take advantage of expanding exports. So it seems that making arrangements for inland and port-to-port movements, combined with a myriad of documents, terms of sale Terms of sale
Conditions under which a firm proposes to sell its goods or services for cash or credit. , and government requirements is a formidable barrier to developing export sales.
One solution to the problem of distribution complexities is to develop an external partnership with a third party facilitator specializing in small volume movements and international documentation. Most firms entering world markets begin on a limited scale and cannot afford to invest heavily in a separate internal department with the required expertise to handle transportation arrangements and documentation associated with exporting. Even firms projecting large volume movements can encounter serious problems in organizing for foreign distribution. However, understanding what is involved with international movements and in partnership with a third party intermediary Intermediary
See: Financial intermediary
See financial intermediary. , most companies can effectively develop export capabilities.
The following first examines the segments or components of an international movement along with the documentation required to complete the move. Second, the roles played by two external third parties, international freight forwarders An individual who, as a regular business, assembles and combines small shipments into one lot and takes the responsibility for the transportation of such property from the place of receipt to the place of destination. and non-vessel-owning common carriers, in international distribution are examined. By understanding the requirements associated with an export movement, an appreciation can be developed for how a partnership with a third party intermediary can make exporting a reality.
International Transportation Considerations
International distribution is complicated by the fact that transportation from a point of origin to ultimate destination involves decisions or components not associated with a domestic move. The basic components of an international movement include:
1. Port Selection - Domestic and foreign ports are selected based on proximity to origin and destination, land routing, ocean and air carrier services available, port costs (e.g. wharfage WHARFAGE. The money paid for landing goods upon, or loading them from a wharf. Dane's Ab. Index, h.t. and handling), and any delays which may occur at the port.
2. Inland Movement (Domestic origin to port) - A transportation mode and carrier must be selected and the routing from plant to a predetermined pre·de·ter·mine
v. pre·de·ter·mined, pre·de·ter·min·ing, pre·de·ter·mines
1. To determine, decide, or establish in advance: port established.
3. Port to Port Carrier Selection - For movements other than to Canada or Mexico, the choice of overseas modes is limited to ocean carriage and air freight air freight n → flete m por avión
air freight n → fret aérien
air freight air n → Luftfracht f . Selection of a mode is basically a function of rates, time in transit, and needs of the customer.
4. Delivery Movement (Foreign port to destination) - Upon arrival at the foreign port, arrangements must be made for delivery to the final destination.
In addition to these transportation concerns, other distribution related considerations include:
1. Packing/Packaging - International and carrier requirements often dictate a necessity for a change in the way a product is packaged. This can be particularly true for ocean transportation.
2. Transit Insurance - Ocean carriers accept minimal liability, necessitating the purchase of additional insurance. The type and scope of coverage must be determined.
3. Terms of Sale - A wide variety of sale terms are available which assign responsibility for method of payment, insurance, claims, and freight charges.
4. Import Duties - Duties are normally a function of the designed use of the product and product configuration.
5. Handling/Loading - Containerized con·tain·er·ize
v.tr. con·tain·er·ized, con·tain·er·iz·ing, con·tain·er·iz·es
1. To package (cargo) in large standardized containers for efficient shipping and handling.
2. cargo must be loaded at the plant, port, or by a third party. Break-bulk movements often require additional handling and packaging.
6. Method of Financing - The costs and risks associated with the different methods of financing must be considered.
A complete description of all the alternatives related to each of these considerations is beyond the scope of this paper. However, the above elements do provide the potential exporter with an appreciation for the variety of decisions that must be made.
Domestic transportation normally takes place using a single document, the bill of lading A document signed by a carrier (a transporter of goods) or the carrier's representative and issued to a consignor (the shipper of goods) that evidences the receipt of goods for shipment to a specified designation and person. , the contract of carriage A contract of carriage is a contract between a carrier of goods or passengers and the consignor, consignee or passenger. Contracts of carriage typically define the rights, duties and liabilities of parties to the contract. between the shipper SHIPPER. One who ships or puts goods on board of a vessel, to be carried to another place during her voyage. In general, the shipper is bound to pay for the hire of the vessel, or the freight of the goods. 1 Bouv. Inst. n. 1030. and carrier. Most shipments within the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. can be completed with a Uniform Bill of Lading, but this is not the case with international distribution. Documents must be prepared to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?"
coordinate - be co-ordinated; "These activities coordinate well" prearranged pre·ar·range
tr.v. pre·ar·ranged, pre·ar·rang·ing, pre·ar·rang·es
To arrange in advance.
pre terms of sale, regulations pertaining per·tain
intr.v. per·tained, per·tain·ing, per·tains
1. To have reference; relate: evidence that pertains to the accident.
2. to clearance at both port or origin and destination, and carrier requirements. Some of the more common documents associated with an export shipment along with their purpose are describe in Exhibit 1.
Considerable expertise may be necessary to determine which documents are required and how they must be completed. Because requirements vary from country to country, it is necessary that care be taken to insure that all documentation conforms with current regulations of the individual countries. One source of information on these requirements is the Bureau of National Affairs BNA (The Bureau of National Affairs, Inc.) is a Washington, D.C.-based publisher of news and information on legislation, regulations, and court decisions for professionals in business and government. It is the oldest wholly employee-owned company in the United States. International Trade Reporter, which provides information on marketing channels, commercial practices, tariff systems, documents required, packaging regulations, and special regulations regarding the importation of certain products.
Third Parties in International Distribution
Because there are numerous requirements associated with handling an international shipment, a potential exporter should consider forming an external partnership with a third party intermediary. These firms specialize in such activities as carrier selection, freight consolidation, and documentation. Two of these middlemen, International Freight Forwarders and Non-Vessel-Operating Common Carriers (NVOCC See Non Vessel Operating Common Carriers. ) can provide the necessary expertise for the first time, small volume or infrequent exporter. Even large firms may choose to turn over this portion of their business to a third party.
International Freight Forwarders are licensed by the Federal Maritime Commission The Federal Maritime Commission (FMC) regulates the waterborne foreign and domestic offshore commerce of the United States; ensures that U.S. international trade is open to all nations on fair and equitable terms; and protects against unauthorized activity in the waterborne commerce of to perform documentation and banking services, in addition to arranging for the transportation of freight. As such, they are licensed to act as an agent on behalf of shippers to perform all distribution functions which would be performed by an in-house export department. Non-Vessel-Operating Common Carriers (commonly referred to as an NVOCC or an NVO NVO
no visible oestrus (see no visible estrus). Called also NVE. ) are common carriers (like a trucking firm) specializing in consolidating small shipments from several shippers into container loads for movement by ocean carriage. An NVOCC purchases blocks of space from ocean carriers and then, in effect, resells that space in smaller quantities to individual shippers. Individually or collectively, these two transportation intermediaries can play an important role in arranging cargo movements to foreign countries.
If a shipper has freight which is to move to an international market (other than Canada or Mexico), the only options for port-to-port movement are ocean carriage and air freight. Because of the high cost of air freight, ocean carriage often provides the most economical means of transportation. There is, of course, a trade off associated with the speed differential, but careful planning normally permits timely arrival by ocean carrier. The following discussion will focus primarily on the role played by the freight forwarder and NVOCC in arranging for ocean carriage.
Arranging for Export Transportation
In general, an export movement can be handled by the shipper in several ways. Each option requires a different degree of shipper and/or intermediary involvement. The first alternative is for a shipper to deal directly with a steamship steamship, watercraft propelled by a steam engine or a steam turbine. Early Steam-powered Ships
Marquis Claude de Jouffroy d'Abbans is generally credited with the first experimentally successful application of steam power to navigation; in 1783 his company and negotiate the best rate possible. In this case, all documentation must be performed by the shipper. Also, most steamship companies do not solicit small volume (less than container load Less Than Container Load
Shipments of less than container load size (<$50,000). or LCL 1. LCL - The Larch interface language for ANSI standard C.
[J.V. Guttag et al, TR 74, DEC SRC, Palo Alto CA, 1991].
2. LCL - Liga Control Language.
Controls the attribute evaluator generator LIGA, part of the Eli compiler-compiler. ) freight, leaving that job to the NVOCC. Therefore, a second alternative involves enlisting the services of an NVOCC who takes the shipment, combines it with other small shipments, and tenders it to the steamship company in a full container load (FCL FCL Facility (Security) Clearance
FCL Full Container Load
FCL Framework Class Library (Microsoft .NET)
FCL Fault Current Limiter
FCL Forecastle (ship's hull) ). Again, the documentation must be performed by the shipper. The final possibility is for the shipper to work with an international freight forwarder who will handle all documentation and arrange for movement of the freight either through an NVOCC for LCL amounts or the steamship company in the case of FCL volumes.
Services of an International Freight Forwarder (IFF 1. (file format) IFF - Interchange File Format.
2. IFF - Identify friend or foe (radar).
3. (mathematics, logic) iff - if and only if, i.e. necessary and sufficient. )
The basic function of an international freight forwarder is to make all the arrangements for inland movements of freight to and from the port and port-to-port movements via air or steamship companies. In addition, forwarders perform documentation, banking, and insurance services for the shipper. Some forwarders charge individually for specific services performed while others charge a single fee for the entire transaction. Piece work charges will normally cost $15-$20 per document (e.g. ocean bill of lading Ocean bill of lading
Receipt for a shipment by boat, that includes freight charges and title to the merchandise. , Ex-Dec, certificate of origin, bank draft, etc.) plus phone calls, FAX charges, and other incidental expenses Noun 1. incidental expense - (frequently plural) an expense not budgeted or not specified; "he requested reimbursement of $7 for incidental expenses"
incidental, minor expense
plural, plural form - the form of a word that is used to denote more than one . Forwarders who charge on a per shipment basis normally charge $65-$85 per shipment, regardless of the paperwork involved. In addition, all forwarders charge for out-of-pocket expenses out-of-pocket expenses n. moneys paid directly for necessary items by a contractor, trustee, executor, administrator or any person responsible to cover expenses not detailed by agreement. such as courier fees and consular con·sul
n. Abbr. Con. or Cons.
1. An official appointed by a government to reside in a foreign country and represent his or her government's commercial interests and assist its citizens there. See Usage Note at council. fees. In addition to income derived from documentation services, forwarders receive commissions from steamship companies for freight booked with their line. Commissions may also be earned from booking freight through an NVOCC.
Some of the specific services provided by forwarders include the following:
1. Booking space on carriers - Forwarders will book carrier space using information provided by the exporter. Basic information needed by the forwarder Forwarder
Acts as a travel agent for cargo. A forwarder specializes in arranging the transport and completing required shipping documentation. Some are affiliated with NVOCC services. In the United States they are licensed by the Federal Maritime Commission. include weight, cube (or dimensions), port of loading, and port of discharge. The forwarder then books the cargo and is provided information regarding the vessel name, booking number, loading date, departure date, and arrival date. Without this information, the shipper cannot deliver his cargo to the pier.
2. Preparing air way bill or ocean bill of lading instructions - Air freight forwarders issues air way bills as an agent of the airline. Ocean freight forwarders submit instructions to the carrier, who prepare the actual ocean bill of lading.
3. Prepare consular documents - Certain countries require information be submitted on their own forms called Consular Forms. The forwarder will prepare these forms in the required language.
4. Arranging for insurance - Because an international forwarder acts as an agent for the shipper, they do not accept liability for the freight while en route. However, they do arrange for marine insurance which covers the shipment while at sea. Most forwarders have a "open Cargo" marine insurance policy. If the shipper or consignee consignee n. a person or business holding another's goods for sale or for delivery to a designated agent. (See: consign)
CONSIGNEE, contracts. One to whom a consignment is made.
2. desires insurance, they may use the forwarders, at the current insurance rate. Forwarders prepare a certificate which accompanies the other documents. Premiums are based on the destination of the goods and their value, derived from the commercial invoice Commercial invoice
Bill for merchandise sold. . In addition, inland carriers have cargo insurance, port facilities maintain stevedoring insurance, and ocean carriers have cargo insurance in port and to the three mile limit.
5. Prepare and send shipping notices and documents - Forwarders prepare "in-house" documents which inform the shipper and consignee regarding the status of the shipment. For example, a booking confirmation provides the shipper with the details of the cargo booking while a transmittal letter Transmittal letter
A letter describing the contents and purpose of a transaction delivered with a security that is changing ownership. gives details of the documents being sent to the consignee or his agent.
6. Advising the shipper on terms of sale - Forwarders are well conversant CONVERSANT. One who is in the habit of being in a particular place, is said to be conversant there. Barnes, 162. with terms of sale and are able to advise the shipper about the best way to ship. Cargo terms of sale delineate primarily the point at which the title to the goods transfers from buyer to seller and who pays for and is responsible for the various logistics charges. These charges include inland loading and transportation, vessel loading/un-loading, freight charges, insurance charges, and final transportation to destination. For example, terms of sale stated as "C.I.F. Port of Discharge" indicates that the price charged to the buyer includes all charges (cost of product, insurance, and freight) except the unloading Unloading
Selling securities or commodities whose prices are dropping to minimize loss. at the discharge port and inland transportation to destination.
7. Arranging for inland transportation - Most forwarders work closely with a variety of domestic transportation companies and are easily able to arrange quality service at competitive rates.
NVOCC (Non-Vessel-Operating Common Carrier) Services
An NVOCC or NVO is a common carrier but is not licensed to perform banking and documentation services. Their primary role is to act as a consolidator of less than container loads (LCL) of freight into full containers. Some firms operate both as an NVOCC and a freight forwarder in which case the full range of services offered by both types of intermediaries are provided. Operating separately, the NVOCC develops partnerships with freight forwarders who provide them with LCL shipments. By utilizing the vessels of steamship lines, an NVOCC provides ocean shipping services without operating ships.
Unlike the international freight forwarder, who only acts as an agent for the shipper, the NVOCC is itself the prime carrier. As such, it accepts liability for shipments for which it has issued bills of lading. Their relationship with the shipper is the same as any other common carrier who chooses to use the underlying services of another carrier (steamship companies in this case). Therefore, the NVOCC acts as a carrier for the shipper and at the same time is a shipper itself when dealing with the steamship company. Specific services offered by the NVOCC include:
1. Offering space on vessels through prior booking - By design, the NVOCC specializes in LCL cargo and concentrates its entire attention on the LCL shipper. Steamship lines normally direct their attention to the volume shipper leaving the smaller firm at a disadvantage when it comes to obtaining a favorable fa·vor·a·ble
1. Advantageous; helpful: favorable winds.
2. Encouraging; propitious: a favorable diagnosis.
3. rate. A NVOCC's profit is derived from purchasing volume space at volume prices and essentially reselling that space at LCL prices. The spread between those prices becomes the profit margin. For example, an NVOCC might be able to purchase space for $800 per container using an FAK FAK Freight All Kinds
FAK Focal Adhesion Kinase
FAK First Aid Kit
FAK Federasie Van Afrikaanse Kultuurvereniginge (Federation of Afrikaans Culture Organisations, South Africa)
FAK Fußballklub Austria Wien (freight all kinds) rate which requires at least three shippers and five commodities within the container to qualify. For a 25 cubic meter Noun 1. cubic meter - a metric unit of volume or capacity equal to 1000 liters
cubic metre, kiloliter, kilolitre
metric capacity unit - a capacity unit defined in metric terms container the space is resold at $90 per cubic meter generating a $58 per cubic meter profit. Additional charges are made for inland movements.
2. Arranging for inland transportation - The pickup and/or delivery of the shipment itself to the NVOCC is often provided by a trucking firm affiliated with the NVOCC, otherwise, arrangements are made with an independent firm to provide this service. In either case, an additional charge is required. Some NVOCC's will pay inland carrier charges and simply add the cost on to their own freight bill.
3. Loading containers - NVOCC's load containers at their facility (or purchase such services) and rates quoted include this service. For ease of delivery, containers are often loaded for sequential delivery overseas.
4. COD - As a common carrier, a NVOCC may collect C.O.D. charges in foreign countries and remit To transmit or send. To relinquish or surrender, such as in the case of a fine, punishment, or sentence.
An individual, for example, might remit money to pay bills.
TO REMIT. To annul a fine or forfeiture.
2. the proceeds to the seller.
In recent years, trucking companies have diversified into the NVOCC market as a logical extension of their existing business. The trucking firm provides the inland portion of the export move along with the pickup of freight for the NVOCC prior to the stuffing of the container. A-P-A A-P-A Aircraft-Propulsion-Avionics Transport, Preston Trucking, and Ryder Truck Lines have all entered the NVOCC market. Exhibit 2 provides a summary of the basic difference in the roles played by the international forwarder and the NVOCC.
Partnerships in International Distribution
During the 1980's the use of external partnerships in distribution became recognized as an effective means of gaining a competitive advantage. The outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. of distribution activities to a third party often allows a firm to increase service to buyers and reduce costs. In the process, fixed investment, expenses, managerial burden and transit times transit time
the time required for ingesta to pass through the gastrointestinal tract; a shorter transit time is seen in conditions associated with gut hypermotility, such as diarrhea. Delayed passage from any cause results in a longer transit time. can be reduced. Shippers can then concentrate more resources on other activities such as production and marketing.
For firms wishing to export, a good relationship with a reliable international transportation specialist is a necessity. A good place to start is with an international freight forwarder and/or NVOCC. In addition, these two intermediaries develop working relationships with each other allowing each organization to concentrate on a given segment of the business (consolidation or documentation). Finally, international forwarders often have close working relationships which other international intermediaries. For example, forwarders have close ties with custom house brokers which oversee goods through customs in the importing nation. Also, export packers work closely with forwarders acting as a consolidation point and container "stuffer" for smaller volume shipments (similar to the NVOCC). These partnerships provide the shipper with a "one-stop shopping" point and precludes the need for establishing a separate department for export distribution.
First time, small volume, or infrequent exporters are faced with the formidable task of coordinating both multiple transportation movements and a wide variety of documentation and financing arrangements. However, the task can be made manageable by developing working relationships or partnerships with third party intermediaries who specialize in providing necessary services. International freight forwarders and non-vessel-operating common carriers are only two of the many types of firms available to assist the shipper. Together, it is these partnerships which dispel the myth that only large firms can take advantage of rapidly developing world markets.
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