Import Export Chapter 4 PDF

CHAPTER FOUR ============ SUPPORTIVE SERVICE IN IMPORT EXPORT =================================== Shipment Related Activities and Procedures: Transportation ---------------------------------------------------------- Three modes of transportation are available for exporting products overseas: air,...

CHAPTER FOUR ============ SUPPORTIVE SERVICE IN IMPORT EXPORT =================================== Shipment Related Activities and Procedures: Transportation ---------------------------------------------------------- Three modes of transportation are available for exporting products overseas: air, water (ocean and inland), and land (rail and truck). Whereas inland water, rail, and truck are suitable for domestic transportation and movement of goods between neighboring air and ocean transport are appropriate for long-distance transportation between countries that do not share a common boundary. Export-import firms may use a combination of these methods to deliver merchandise in a timely and cost-efficient manner. The exporter should consider market location (geographical proximity), speed (e.g., airfreight for perishables or products in urgent demand, etc.), and cost when determining the mode of transportation. - **[Air Transportation:]** Airfreight is the least utilized mode of transportation for cargo and accounts for less than 1 percent of total international freight movement. However, it is the fastest growing mode and not just confined to the movement of high-value products. - **[Ocean Freight]**: Ocean shipping is the least expensive and the dominant mode of transportation in foreign trade. It is especially suitable for moving bulk freight such as commodities and other raw materials. Today, almost all ocean freight travels by containers, which results in minimal handling at ports. If a full container- load cargo is to be shipped, a freight forwarder arranges for the container to be delivered to the shipper's premises. Once the container is fully loaded, it is moved by truck to a port to be loaded onto a vessel. ***Types of Ocean Carriers*** The following are the three major types of ocean carriers - **Private fleets -** these are large fleets of specialized ships owned and managed by merchants and manufacturers to carry their own goods. Apart from its cost advantages, ownership of a private fleet ensures the availability of carriage that meets the firm's special needs. - **Tramps (chartered or leased vessels):** Tramps are vessels leased to transport, usually, large quantities of bulk cargo (oil, coal, grain, sugar, etc.) that fill the entire ship (vessel). Chartered vessels do not operate on a regular route or schedule. Charter arrangement can be made on the basis of a trip or voyage between origin and destination or for an agreed time period, usually several months to a year. The vessel could be leased with or without a crew (bare-boat charter). The major factors for the continued existence of tramp shipping are that (1) it provides indispensable ocean transportation at the lowest possible cost, and (2) it is adaptable to the changing and/or unanticipated requirements for transportation. When charter rates are low, commodity traders tend to move materials in advance of actual delivery time to take advantage of low transportation costs. The just-in-time system that delivers products when they are needed is not often feasible in cases in which transport and distribution could be impeded by severe winter weather. - **Conference lines**. A shipping conference line is a voluntary association of ocean carriers operating on a particular trade route between two or more countries. Shipping conferences date back to the nineteenth century when such associations were established for trade between England and its colonies. One of the distinguishing features of a liner service is that sailings are regular and repeated from and to designated ports on a trade route, at intervals established in response to the quantity of cargo generated along that route. Even though the sailing schedule is related to the amount of business available, it is general practice to dispatch at least one ship each month. - Land Transport: Land transportation carriers (trucks, trains) are mainly used to transport exports to neighboring countries as well as to move goods to and from an airport or seaport. A substantial volume of U.S. exports to Canada and Mexico is moved by rail and/or trucks. Compared to rail transport, trucking has the advantage of flexibility, faster service, lower transportation costs, and less likelihood of damage to merchandise on transit. Rail transport has its own unique advantages: capacity to handle bulk cargo, free storage in transit, as well as absorption of loading, unloading, wharf age, and lighter charges. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ With the proliferation of free-trade agreements in various regions, there is likely to be a marked growth in the role of land carriers in transporting exports among countries that are in the same geographical area. For example, in eastern and southern Africa, an agreement that allows movement of land carriers across countries would make trucks and trains the dominant mode of transportation for exports. This is because land transport already accounts for over 80 percent of the region's freight movements and with a regional arrangement, these transportation services could easily be extended to neighboring countries with limited capital investment. ### ### Packing The rigors of long-distance transportation of goods require protection of merchandise from possible breakage, moisture, or pilferage. This means that goods in transit must be packed not only to allow the overseas customer to take delivery of the merchandise but also to ensure its arrival in a safe and sound condition. Consumers in many countries often prefer packaging with recyclable or biodegradable containers due to environmental concerns. For example, about 70 percent of packaging material used in any of the federal states in Germany must be recycled or reused. Packaging cost has an influence on product design. In certain cases, it is considered less costly to ship disassembled parts or dense cargo to save shipping cost. Merchandise should be packed in strong containers, adequately sealed, and filled, with the weight evenly distributed. Goods should be packed on pallets if possible, to ensure greater ease in handling, and containers should be made of moisture-resistant material. Packing must be done in a manner that will ensure safe arrival of the merchandise and facilitate its handling in transit and at its destination (see International Perspective 6.2 for an example of product packing tips). ### 3. Forwarding Agents A freight forwarder is the party that facilitates the movement of cargo to the overseas destination on behalf of shippers and processes the documentation or performs activities related to those shipments. Freight-forwarding activity dates back to the thirteenth century when traders employed middlemen, or "frachtors," to cart and forward merchandise throughout Europe. The frachtor's responsibility later extended to provision of long-distance overseas transportation and storage services, issuance of bills of lading, and collection of freight, duties, and payment from consignees. Many forwarding concerns originally started as freight brokers, but with the continuing increase in manufactured shipments, the forwarding work took precedence over the broker activity. Today, some forwarders handle ship loads of large parcels either on a common carrier or tramp vessels as brokers, but for the most part, forwarders deal with individual shipments varying in size or containers 3. **[Insurance related issues]** Export-import firms depend heavily upon the availability of insurance to cover against risks of transportation of goods. Risks in transportation are an integral part of foreign trade, partly due to our inability to adequately control the forces of nature or to prevent human failure as it affects the safe movement of goods. Insurance played an important part in stimulating early commerce. The primary purpose of insurance in the context of foreign trade is to reduce the financial burden of losses arising from the movement of goods over long distances. In export trade, it is customary to arrange extended marine insurance to cover not only the ocean voyage but also other means of transport that are used to deliver the goods to the overseas buyer. Risks in Foreign Trade ====================== Businesses conducting export-import trade face a number of risks that may adversely impact their operations, such as the following: - *[Political risk]*: Actions of legitimate government authorities to confiscate cargo, war, revolution, terrorism, and strikes that impede the conduct of international business. - *[Foreign credit risk:]* Nonpayment or delays in payment for imports. - *[Transportation risk:]* Loss (partial/total) or damage to shipment during transit. - *[Foreign exchange/transfer risk:]* Depreciation of overseas customer's currency against the exporter's currency before payment or the non-availability of foreign currency for payment in the buyer's country. 2. Marine Insurance ================ Marine policy is the most important type of insurance in the field of international trade. This is because (1) ocean shipping remains the predominant form of transport for large cargo, and (2) marine insurance is the most traditional and highly developed branch of insurance. All other policies, such as aviation and inland carriage, are largely based on principles of marine insurance. Practices and policies are also more standardized across countries in the area of marine insurance than in insurance of goods carried by land or air. Types of Policies ----------------- There are two general types of marine cargo insurance policies: A. **Perils-only policy:** This policy generally covers extraordinary and unusual perils that are not expected during a voyage. The standard perils-only policy covers loss or damage to cargo attributable to fire or explosion, stranding, sinking, collision of vessel, general average sacrifice, and so on. Such policies do not generally cover damage due to unseaworthiness of vessel or pilferage. An essential feature of such a policy is that underwriters indemnify for losses that are attributable to expressly enumerated perils. The burden is on the cargo owner to show that the loss was due to one of the listed perils. Export-import companies have the option of purchasing additional coverage (to include risk of water damage, rust, or contamination of cargo from oil, etc.) or take an all-risks policy that provides broader coverage. B. **All-risks policy:** The all-risks policy provides the broadest level of coverage except for those expressly excluded in the policy. In the case of all-risks policy, the burden to prove that the loss was due to an excluded clause rests with the underwriter. Additional coverage can be provided through an endorsement on the existing all-risks policy or through a separate war-risks policy. Assuring Quality in Import Export --------------------------------- Ensuring quality is the best means of winning consumer confidence and sales. Many manufacturing firms find that they must meet new and different standards criteria (national, corporate, regional, or international) to compete in the global marketplace. Even though the majority of industrial standards are voluntary, there are mandatory government imposed standards in the fields of health and safety, food and drugs, and the environment. In many European countries, consumers often base their purchasing decision on proof of certification for the product or service. European community directives also mandate that companies meet certain product certification standards in order to sell in the European Union. In the area of imports, quality standards provide a basis for assessing quality of products and services. Suppliers are provided a guide as to the quality of product to be manufactured, while buyers are provided with the confidence that the goods are safe and meet high quality standards. It is important to establish quality testing and inspection procedures, and in the case of large orders, the importer could appoint a quality inspector at the supplier's location to assess and advise the supplier on quality. Acceptance and payment on a letter of credit can be made conditional on receipt of a satisfactory inspection certificate. An example of a quality control program for imports is the one jointly created by Chrysler, GM, and Ford (the QS-9000). The QS-9000 employs the ISO-9000 international quality assurance standard coupled with industry specific criteria. The program mandates the use of QS-9000 quality standard by suppliers around the world. It requires organizations to implement continuous performance improvements with regard to quality (ISO-9000) and environmental management (ISO-14000). This is intended to ensure that products or services satisfy the customer's quality requirements and comply with any regulations applicable to those products or services.