1. Chapter 10 Global Transportation Planning
Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning
Chapter 10
Global Transportation Planning
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2. Introduction Global economy in a volatile period
Much downward pressure on transport rates
In an economy focused on cost control, both carriers and their customers must plan effectively
Chapter focus: proper global transport planning
Chapter organization
Global transport industry: size, options, flows
Key planning issues: trade and payment terms, documentation
Mode, carrier, and route selection criteria
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3. Overview of Global Transportation
Total global merchandise exports
$14 trillion in 2009, $15.8 trillion in 2008
$750 B. spent on transport services in 2007
8 B. tons moved in international seaborne trade in 2007, accounting for 80-90% of global trade
U.S. is largest trading partner
Exports: $1.3 trillion, imports: $2.1 trillion
Creates large transportation flows to/from U.S.
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4. Overview of Global Transportation Global Trade Agreements
Trade stimulated by free trade agreements
Agreements between nations that lift most tariff, quota, and fee/tax limitations on trade
Bi-lateral agreements are between two nations
U.S. currently in 14 bi-lateral free trade agreements
Regional trade agreements involve 3+ nations
U.S. currently involved in:
Free Trade Area of Americas
Middle East Free Trade and Enterprise for ASEAN Initiatives
North American Free Trade Agreement (NAFTA)
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5. Overview of Global Transportation Global Trade Agreements
NAFTA includes U.S., Mexico, and Canada
Principles include:
Unimpeded flow of goods
Enhanced cross-border movement of goods/services
Principles were to enable transport carriers to move more easily between countries
Today, Canadian carriers have same rights in U.S. as U.S. carriers have in Canada
May transport domestic traffic when incidental to return trip
Same accessibility is not currently available between U.S. and Mexico
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6. Overview of Global Transportation Logistics Channel Issues
Transaction channel activities
A key activity is specifying when and where legal title to goods transfers. Defines responsibility for:
Mode and carrier selection and shipment routing
Obtaining insurance coverage
Payment for transport services, insurance, and import duties
Compliance with regulations, management of goods while in-transit, and financial liability while in-transit
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7. Overview of Global Transportation Logistics Channel Issues
A 2nd key transaction channel activity is arranging payment for the goods
Obtaining payment is riskier in global trade compared to domestic trade
Advance payment would be ideal for exporter
Importer would be concerned about paying in advance of seeing/inspecting the goods
There are many terms of payment options used to balance these risks
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8. Overview of Global Transportation Logistics Channel Issues
Communication channel
Documentation requirements are much higher for global than for domestic transactions
Example: 150 documents required for each import shipment of perishable food as it moves through cold chain
Organizations requiring documentation include:
Countries of export and import
Transportation companies, banks, and the importer
Many documents not in electronic form
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9. Overview of Global Transportation Logistics Channel Issues
Distribution channel
Greater distance and complexity of global shipments means higher risk of disruptions
Global freight moves through more facilities and handled by more intermediaries
Transport infrastructure, regulations, and service options vary from country to country
Requires more diligence in transport mode, carrier and route selection decisions
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10. Overview of Global Transportation Global Transportation Challenges
Proper long-range planning requires:
Monitoring macro-level issues, such as:
General business/economic trends, including fuel prices
Changes in governmental regulations and interventions
Consumer demand trends
Monitoring specific issues, such as:
Trade level fluctuations
Carrier consolidation activity
Security risks
Shifts in regional sourcing
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11. Export Preparation Activities
Key export preparation activities are:
Choosing terms of trade
Securing freight insurance
Agreeing upon terms of payment
Completing required freight documentation
Completion of these activities helps to:
Clarify importer and exporter responsibilities
Protect each party’s financial interest
Improve freight control and visibility
Facilitate problem-free transport
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12. Export Preparation Activities Terms of Trade
Terms of trade define where responsibilities transfer from exporter to importer
Govern decision making authority for movement of the product
Establish when and where ownership and title of goods pass from exporter to importer
Clarifies which organization incurs delivery-related costs
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13. Export Preparation Activities Terms of Trade
Potentially, each country could have its own set of trade terms
This would create uncertainties in the meaning of terms and raise transaction costs
Thus, a worldwide standardized set of terms and definitions was established
Known as the International Commercial Terms
Common name is Incoterms
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14. Export Preparation Activities Terms of Trade
Incoterms
13 different Incoterms, divided into 4 primary groups, are available
All 13 apply to ocean transport
Just 7 Incoterms are appropriate for air, truck, rail and intermodal transport
Typically expressed as three letter acronyms with a named location
Examples: DEQ, Long Beach, CA, U.S.A., Incoterms 2000
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15. Export Preparation Activities Terms of Trade
4 primary groups of Incoterms
E term: Importer takes full responsibility
Consists of just one Incoterm: Example Works (EXW)
F terms: Exporter has responsibility for getting shipment from origin to port of embarkation
3 F terms
Free Carrier (FCA): may be used with any mode
Free Alongside Ship (FAS): water transport only
Free On Board (FOB): water only and exporter assumes responsibility for cargo loading
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16. Export Preparation Activities Terms of Trade
C terms: Exporter obtains and pays for main transport leg and/or cargo insurance. 4 C terms:
Cost and Freight (CFR): water shipments only
Carriage Paid To (CPT): any mode of transport
Cost, Insurance, Freight (CIF) and Carriage and Insurance Paid To (CIP): Exporter pays for main carriage and insurance
D terms: Exporter responsible for delivery of shipment to foreign destination. 5 D terms:
Delivered at Frontier (DAF): all modes.
Delivered Ex Ship ((DES) and Delivered Ex Quay (DEQ) : water shipments only
Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP): all modes. Highest levels of exporter responsibility
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19. Export Preparation Activities Cargo Insurance
International shipments exposed to larger financial risks and transport perils
Financial risks for cargo owner
Significant dollar limitations on ocean and air carrier liability
If there is damage or delay, burden of proof falls on cargo owner to prove that carrier was at fault
Transportation perils
Many ocean-related perils, including cargo movement, water damage, overboard losses, and hijacking
Perils by other modes are relatively minor
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20. Export Preparation Activities Cargo Insurance
Managing risks
Decision between retaining or transferring risks
Retaining risk is essentially self insurance. Makes most sense when:
Goods shipped are low value or not susceptible to damage
Carriers used rarely deliver damaged or lost freight
A damaged shipment would have relatively minor financial impact on the freight owner
Risk transfer via insurance is appropriate when above conditions are not met
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21. Export Preparation Activities Terms of Payment
Terms of payment exist to manage higher risks of international sales transactions
Letter of credit (LC)
Ensures exporter is paid and importer receives goods as expected
Importer’s bank issues LC to the exporter
Bank guarantees payment provided goods delivered per terms of the LC
Bank uses importer’s line of credit to guarantee payment
Bank charges the importer a fee for issuing the LC
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22. Export Preparation Activities Terms of Payment
Draft or bills of exchange
Similar to a check, except title to the goods does not transfer to importer until draft is paid
Sight draft
Used when exporter wishes to retain ownership until goods are delivered and payment received
The original ocean bill of lading (showing title) must be presented to carrier before goods are released to importer
Time draft
Used when exporter extends credit to buyer
Payment due within time period specified on draft
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24. Export Preparation Activities Freight Documentation
Freight documents control movement of cargo
Mistakes or missing documents inhibit flow of goods
Documentation requirements set by customs regulations of exporting and importing countries
Freight forwarders are documentation experts
Four types of documents
Invoices and transportation documents
Export and import documents
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25. Export Preparation Activities Freight Documentation
Invoice or bill for the goods
International invoices are more complex and there are several types
Commercial invoice is most common. Must contain:
Description of goods, quantities and value – may impact duties
Country of origin, Incoterms, and parties to the transaction
Pro-forma invoice - actually a sales quote
Used by buyers to estimate total landed costs for potential order
Consular invoice - prepared by exporter
Certified in origin country by consul of destination country
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27. Export Preparation Activities Freight Documentation
Export documents
Used by many countries to:
Develop statistics (types, volume, value) of goods exported
Control exports of strategic materials, national treasures
For exports from U.S., following documents required:
Shipper’s export declaration (SED)
Required on all exports exceeding a nominal value and all exports requiring an export license
Export license
Used to control export of sensitive materials to selected countries
Certificate of end use
Purpose: assure exporting country that product put to intended use
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28. Export Preparation Activities Freight Documentation
Import documents
Intended to:
Protect citizens from inferior quality products
Properly classify products for collection of duties
Limit imports of products deemed inappropriate
Certificate of origin
Most widely required import document
Indicates shipment origin, but not location of production
Used to determine appropriate import tariff
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29. Export Preparation Activities Freight Documentation
Certificate of manufacture
Indicates location of product production
Also used to determine appropriate import tariff
Certificate of inspection
Attests to authenticity and accuracy of description of the goods shown in the commercial invoice
Other import documents
Phyto-sanitary certificates
Certificate of analysis
Certificate of certification
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30. Export Preparation Activities Transportation Documents
Carrier manifest
Lists critical information needed to perform the transport service
Bill of lading – primary transport document
Contract of carriage between cargo owner and transport company
Serves as receipt for the goods
For international shipments, ocean bill of lading and air waybills are used
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31. Export Preparation Activities Transportation Documents
Various types of bills of lading
Through bill of lading
Intermodal bill of lading
Negotiable vs. non-negotiable bill of lading
If non-negotiable, carrier must deliver only to consignee named on the bill
If negotiable, the person possessing the bill has the right of ownership to the goods
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32. Export Preparation Activities Transportation Documents
Transport documents are largely paper-based
Major challenge: move toward electronic document format
International Air Transport Association e-freight initiative
Intended to replace the 20 most widely used paper documents with electronic messages
Anticipated to reduce costs by $4.9B, improve accuracy, and speed transmission of information
Other U.S. electronic document initiatives
Automated Commercial Environment
Auto. Brokers Interface System, Auto. Export System
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33. Transportation Planning Mode Selection
Decision must achieve best fit and balance between:
Modal service capabilities
Accessibility, capacity, transit time, reliability, safety
Product characteristics – size, durability, value
Supply chain requirements for speed, service, cost
Decision must also align with corporate strategy, control risk and provide required level of customer service
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35. Transportation Planning Carrier Selection
Decision based on best fit and balance between:
Geographic coverage
Average transit time and reliability
Reliability of on-time pickup and delivery
Technical capabilities, ability to share information
Equipment availability and capacity
Product protection/carrier’s freight damage experience
Carrier’s financial stability and freight rates
Service factors tend to outweigh cost
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36. Transportation Planning Carrier Selection
Carrier selection strategy
Leverage transportation dollars by using a limited number of carriers
Build relationships with service providers
Monitor carrier performance, rates, and financial stability
Have contingency plan with back-up carriers
Differs from mode selection decision
Many more options to choose from
Decision made more frequently but not for each move
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37. Transportation Planning Route Planning
Carriers primarily responsible for routing
However, shippers should have input to ensure proper consideration given to:
Customer satisfaction and supply chain performance
Efficiency and product safety during transit
Routing decisions should be
Coordinated with mode and carrier selection
Aligned with global sourcing, inventory, demand fulfillment strategies
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