International Procurement

• International procurement is a commercial transaction between a buyer and a seller located in different countries

Drivers for Buying from Offshore

• Pressure to reduce costs such as outsourcing call centers to India and clothing production in Sri Lanka
• Manufacturing flexibility when there are capacity restrictions, so contracts can be placed offshore to guarantee additional capacity
• Access to specialist skills
• Market development can be greatly facilitated by procuring goods and services in the target market
• Domestic non-availability of raw materials

Sources of Information for Offshore Suppliers

• Internet
• Foreign embassies
• Directories such as Kompass and Alibaba
• Trade exhibitions
• Procurement consultants

Key Considerations When Sourcing Offshore

• Buyer's experience requires the ability to research sources of supply, conduct vendor appraisal, negotiate, and put in place effective contracts
• Currency fluctuations require expert advice from finance/banking specialists to optimize risk during the contract's life
• Supplier evaluation requires a tailored request for information (RFI) document to evaluate logistics, product support, contract terms, the supply chain, finances, and quality management.
• Culture and language require expert knowledge of cultural differences and how to deal with language barriers to prevent misunderstandings in communication
• Political stability is a key consideration
• Logistics support is vital for moving goods around the world in a timely manner
• Duty and customs regulations are ever-changing and require expert support from in-house specialists or freight forwarders.
• Contractual risk: legal jurisdiction, dispute resolution, currency, quality standards, and inspection rights are key
• Contract management requires a buying organization or third party to undertake contract management to avoid risk of non-compliance with contractual obligations
• International quality standards: Buyers need to identify international quality standards that apply to a specific purchase

Incoterms

• Incoterms are international rules for interpreting chief terms used in foreign trade contracts
• They were first published by the International Chamber of Trade
• Types of Incoterms 2010 rules include: EXW, FOB, CFR, CIF, DAP, DDP

Incoterms Rules For Any Mode of Transport

• EXW (Ex Works) is when the seller delivers goods at their premises or named place, not needing to load or clear goods for export
• FCA (Free Carrier) means the seller delivers goods to the carrier or another person at the seller's premises or another named place
• CPT (Carriage Paid To) means the seller delivers goods to the carrier or another person at an agreed place; the seller must contract for and pay for necessary carriage costs to the destination
• CIP (Carriage and Insurance Paid To) means the seller delivers goods to the carrier or another person at an agreed place; the seller must contract for and pay for necessary carriage costs to the destination and insurance cover
• DAT (Delivered at Terminal) is when the seller delivers when the goods are unloaded from the arriving means of transport and placed at the buyer's disposal at a named terminal at the port or place of destination
• DAP (Delivered at Place) is when the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination
• DDP (Delivered Duty Paid) is when the seller delivers the goods, cleared for import, at the disposal of the buyer ready for unloading at the destination, bearing all costs and risks

Incoterms Rules for Sea and Inland Waterway Transport

• FAS (Free Alongside Ship) means the seller delivers when the goods are placed alongside the vessel nominated by the buyer at the named port of shipment
• FOB (Free on Board) means the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment
• CFR (Cost and Freight) means the seller delivers the goods on board the vessel and must contract for and pay for the costs and freight necessary to bring the goods to the named port of destination
• CIF (Cost, Insurance, and Freight) means the seller delivers the goods on board the vessel, and must contract for and pay freight and costs to bring the goods to the named port of destination, including insurance

Transport Advantages

• Road transport vehicles have relatively low capital costs
• Point-to-point delivery times can be effectively managed
• Flexibility of route choice occurs when bad weather or accidents happen
• Road users pay low operating costs and do not pay for road building or maintenance despite road taxes and tolls

Rail Transport

• Effective use of space is necessary for the rail lines
• Design of freight wagons is quite flexible, such as hopper wagons for fertilizers and triple hopper wagons for coal
• Initial capital costs are very high
• Emergence and development of high-speed rail networks

Pipelines

• Pipelines are designed for specific commodities, such as oil and gas
• Pipelines can be subjected to disruption through acts of terrorism and to political intervention, such as Russia with natural gas
• Operating costs are low

Maritime

• Maritime is a low-cost mode strengthened by containerization
• Maritime has growth in globalization; retailers in the UK purchase from the Far East
• Maritime facilitates the movement of energy and mineral cargoes
• Technology improvements in terminals
• Slow speeds average 15 knots (28 km)
• Severe delays are seen in some ports
• Economies of scale, particularly with full container loads

Air Transport

• The threat to supply is severe in cases of bad weather
• There is the impact of the use of airspace and political interventions.
• Relatively high cost but fast speed and flexibility of routes
• Possible impact of terrorism and security
• Fluctuations in fuel prices

Intermodal Transport

• This involves two or more different modes of transportation in conveying goods
• Containerization facilitates a quick change of mode

Freight Agents

• A freight agent or forwarder is a person or company who, for a fee, undertakes to have goods carried and delivered to a destination
• Freight agents are normally engaged when the carriage of goods involves successive carriers or the use of successive means of transport
• Services: international freight quotations, export packing, providing scheduling of carriers, booking inland and international freight movements, containerisation and consolidation of freight (combining several small shipments into one large shipment. This means that a number of companies can collaborate and use one container or truck for their cargo depending on their requirements.), transshipments, supervising freight movements (such as loading of goods onto carriers), export and import documentation, applying for export licenses, pre-shipment inspections, marine and air insurance, warehousing, and assisting with insurance claims

Countertrade

• Countertrade: international trade by exchange of goods rather than by currency purchase

Types of Countertrade

• Barter (swap) is a one-off, direct, simultaneous exchange of goods or services
• Counterpurchase occurs when a company in country X sells to a foreign country Y on the understanding that a percentage of sale's value will be spent on importing goods produced in country Y
• Buy-back/compensation: a firm builds a plant or supplies technology, equipment, training, or other services to a country and agrees to a certain percentage of the plant's output as partial payment for the contract.
  • Goods and services taken back are tied to the original goods exported, while this is not the case with counterpurchase
  • Buy-back usually stretches over a longer period than counterpurchase
• Switch trading refers to the transfer of unused or unusable credit balances in one country to overcome an imbalance of money by a trading partner in another country
• Offset agreement is made by one nation to buy a product from another, subject to the purchase of components and raw materials or the assembly of such product in the buyer nation