Chapter 11: Strategic Leadership Chapter 18 Managing international supply chains

Chapter 11: Strategic Leadership Managing international supply chains This 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership Distribution channels (continued) Government departments Industrial buyers Wholesalers Retailers Export agents* * See Table 18.1

Chapter 11: Strategic Leadership Differences between distributors and export agents

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership International goods transport (continued) 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

Chapter 11: Strategic Leadership International goods transport (continued) Non-operating service providers (continued) – International ship freight forwarders – Non-vessel operating common carriers (NVOCC) – Shipbrokers – Ship agents

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership Multilateral Trading System Series of trading agreements Consensus-based – not majority Flow into national agreements

Chapter 11: Strategic Leadership Growth in global trade Global trade has grown 6 per cent annually in last 50 years.

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership Other security programmes Australia – Frontline Singapore – Secure Trade Partnership Sweden – StairSec Jordan – Golden List Programme

Chapter 11: Strategic Leadership Free-trade agreements EU – 38 countries and growing in one union NAFTA - North American Free Trade Agreement SACU – Southern African Customs Union

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership 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.

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership International trade documents Transaction documents Export documents Inspection documents Insurance documents Financial documents Import documents Transport documents

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership 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

Chapter 11: Strategic Leadership The E term

Chapter 11: Strategic Leadership F terms

Chapter 11: Strategic Leadership C terms

Chapter 11: Strategic Leadership D terms

Chapter 11: Strategic Leadership Categories of Incoterms (1) GroupCodeName of term Group E Departure EXWEx 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)

Chapter 11: Strategic Leadership Categories of Incoterms (2) GroupCodeName of term 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)

Chapter 11: Strategic Leadership Categories of Incoterms (3) GroupCodeName of term 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)

Chapter 11: Strategic Leadership Notes on Incoterms 2000 Added wording Appropriate contract Customs of the port or trade EDI Export and import customs clearance EXW and FCA

Chapter 11: Strategic Leadership Notes on Incoterms 2000 ( continued ) Inspection Insurable interest Packaging Passing of risks and costs Precise point of delivery