Like information on the internet, goods are moving around the world with ever greater efficiency. But Paul Markillie spots dangers lurking in modern supply chains

LOUISVILLE, Kentucky, 2am. Roaring thrust-reversers rapidly slow the giant MD-11 jet as it touches down on the runway before turning to taxi towards a sprawling floodlit building. Seconds after it has pulled up at the ramp, large doors on the fuselage swing open and people scurry around with equipment. But they are not about to unload hundreds of passengers: instead, the aircraft carries stacks of air-freight containers stuffed with parcels and documents. Soon they will be emptied to join the 300,000 packages that are sorted every hour at the UPS Worldport.

Every package is automatically photographed, measured and weighed and has the information on its super-barcode analysed by computers to determine its trajectory along some of the 17,000 conveyor belts. This requires awesome computing power: more data are processed here every 30 minutes than in an entire day of trading on the New York Stock Exchange. Eventually the packages slide down a chute to be placed into a bag or an air-freight container. And before dawn they are off again to complete their journey in another aircraft or in one of a fleet of waiting trucks.

A few hundred miles to the south-west, in Memphis, Tennessee, more landing lights line up across the night sky. This is FedEx's global hub, and for the next few hours an aircraft will land here every 90 seconds. Every one of them has the company logo painted on its tail. Tractors towing containers and cargo pallets dash everywhere. Documents are automatically sorted in a maze of machines. In one giant building, known as the “matrix”, packages zoom around on 300 miles of conveyor belts. Before dawn, all these packages too will have departed again.

As the night continues to travel west, similar scenes unfold at airports in Manila, Taipei, Hong Kong, Mumbai, Guangzhou, Dubai, Cologne, Paris and Anchorage. The goods moving through these air-cargo hubs range from items bought on eBay to vehicle parts, fresh flowers, books, computers, transplant tissue—just about anything imaginable. Even live whales have been “FedExed”. And when the night reaches America again, the landing lights once more appear in the sky over Louisville and Memphis.

St-century clippers

Frederick Smith, FedEx's chief executive, compares his company's jets to clippers, the sailing ships that once carried cargoes on the trade winds. Mr Smith pioneered the air-express business in the early 1970s by delivering a few hundred parcels overnight to a handful of American cities using Falcon aircraft the size of an executive jet. At Memphis airport, the parcels were sorted on a table. Many of his contemporaries thought he was mad: who would pay to send packages by air? He almost went bust. But now FedEx has ordered a fleet of double-deck Airbus A380s to help cope with demand. Rival UPS has also placed orders for the huge new Airbus. Neither company wants any seats inside, just space for lots of cargo. If they were passenger airlines, UPS and FedEx would now rank among the world's biggest carriers.

In an effort to rebrand itself, UPS is painting the phrase “Synchronising the World of Commerce” on its 270-plus aircraft and 90,000-plus vehicles, including its distinctive dark brown delivery trucks. It may not exactly trip off the tongue, but it is an apt description of a business that has grown far beyond simply delivering things. Nowadays firms ranging from trucking companies to freight forwarders, shipping lines, air-cargo carriers and post offices are more likely to use the word “logistics” to describe what they do.

Logistics is a military term. As generals know, wars can be won or lost by it even before they are fought. Now companies are having to become more involved in planning their own logistics. Under relentless pressure to reduce costs and increase sales around the world, firms are outsourcing operations to subcontractors who can do them better and more cheaply, and moving more of their production and services to lower-cost countries.

Globalisation requires greatly increased co-ordination of transport by road, rail, sea, air and now also by an entirely new route to market: the internet. This makes logistics vastly more complex. The job of ensuring that all these things work together is known as supply-chain management. Thomas Freese, an American consultant in this business, explains: “Supply-chain management is an evolution of logistics. Logistics tends to be tactical, supply-chain management is strategic.”

Supply chains are becoming not only longer but also more enveloping. Supply-chain management these days can include anything from buying raw materials to managing suppliers, warehousing, operating transport fleets, taking orders, collecting payments, repairing products and even answering the telephone at call-centres. Companies are also outsourcing supply-chain services.

Yet supply-chain management is not just about wringing costs out of a business. It can also be used to increase revenue and boost profits without necessarily lowering costs. Indeed, some companies have re-engineered their supply chains to gain a huge competitive advantage. What has put Wal-Mart ahead of Sears in retailing, Dell in front of Hewlett-Packard in the personal-computer business and Zara ahead of Marks & Spencer in fashion? The market leaders all have supply chains that are more responsive to customer demand, according to Yossi Sheffi, director of the Massachusetts Institute of Technology's Centre for Transportation and Logistics.

Things like transport, purchasing and warehousing used to be considered merely part of the cost of doing business, and were often managed as separate entities. Now they are coming together as a strategic item on the chief executive's agenda. There is a reason for this. “Supply-chain leaders are very aware of how a company runs because they have to deal with all the different components of the operation,” says Rick Blasgen, who used to work for a big American food group and now runs the Council of Supply Chain Management Professionals.

But as this survey will show, supply chains harbour dangers too, and managing risk is becoming a pressing issue. A number of alarm bells have started ringing. Most firms have been organising their logistics to make themselves leaner. Many now carry little or no inventory to save money. Indeed, sometimes their entire inventory consists of what is moving from the factory directly to the consumer in the back of a truck or an aeroplane. If something goes wrong—and it often does—business will quickly grind to a halt.

Experts worry that some companies do not fully understand the risks of operating very lean international supply chains—or that they choose to ignore them because their rivals are forcing the pace, purchasing critical components from a single supplier to increase their buying power. In fact, some firms do not know who is supplying their suppliers—or even where some of their lower-tier suppliers are based.

 

VOCABULARY CHECK

1) Перевозчики доставляют груз от грузоотправителя к грузополучателю.

2) Логистика включает в себя такие понятия как транспортировка грузов, складирование, экспортно-импортные операции, контроль за продвижением товара, сервисное обслуживание клиентов.

3) Транспортный брокер, как правило, не располагает собственными транспортными средствами.

4) Транспортная накладная, счет и расписка в получении – это основные документы при перевозке грузов.

5) Коносамент - документ, выдаваемый перевозчиком грузоотправителю в подтверждение факта принятия груза к перевозке и обязательства передать его грузополучателю; содержит условия транспортировки товара, удостоверяет право собственности на товар.

6) Транспортно-экспедиционная компания - компания, предлагающая услуги по принятию и отправке грузов клиента.

7) Интегрированные перевозчики - компании-перевозчики, в распоряжении которых имеется более одного вида транспорта.

8) Банк грузоотправителя представляет все грузовые документы банку грузополучателя на инкассо.

9) Балкеры, лесовозы, рефрижераторные суда, танкеры относятся к специализированным видам транспортных средств.

10) Универсальное судно – судно, предназначенное для перевозки самых различных грузов.

11) Суда с горизонтальной погрузкой и выгрузкой получили большое распространение.

12) Для развития контейнерных перевозок требуются значительные инвестиции в обустройство портов, дорог, терминалов.

 

 

SECTION 2 FREIGHT TERMS, LIABILITIES AND RESPONSIBILITIES

LEAD-IN

Collect and prepaid are two of the most common terms in transportation. These words indicate who is responsible for paying the carrier’s freight bill. “Collect” indicates that the freight is payable by the consignee or recipient of the freight. “Prepaid” means that the shipper of the goods is responsible for paying the freight charges. It is very simple but very important.

Cash on Delivery (COD). If you do not trust the creditworthiness of your customer, you may use your carrier as a collection agent for you. Indicate on the bill of lading, in the COD block, the value of the goods you are shipping, and the carrier will not deliver the freight unless they receive a check from the consignee. The carrier then sends the check to you. The carriers charge for this service, but it is nominal and sometimes well worth it.

The International Chamber of Commerce (ICC) developed and issued a set of rules, called INCOTERMS, interpreting the major terms of delivery common in foreign trade contracts. They allow sellers and buyers from different cultures and legal systems to decide at what point the ownership and paying for freight, insurance and customs costs transfer from one to the other. Each INCOTERM is a three letter acronym related to where the seller's responsibility ends.

There are four groups of INCOTERMS - "E", "F", "C" & "D"

E - group: used where the seller does not want to arrange transport.

EXW or " Ex-Works " means the seller's only responsibility is to make the goods available at the seller's premises, i.e., the works or factory. The seller is not responsible for loading the goods on the vehicle provided by the buyer unless otherwise agreed. The buyer bears the full costs and risk involved in bringing the goods from there to the desired destination. Ex works represents the minimum obligation of the seller.

F - group: used where the seller can arrange some transport within his/her own country.

FCA or " Free Carrier " This term has been designed to meet the requirements of multi-modal transport, such as container or roll-on, roll-off traffic by trailers and ferries. The seller fulfils his/her obligations when the goods are delivered to the custody of the carrier at a named point. If no precise point can be named at the time of the contract of sale, the parties should refer to the place where the carrier should take the goods into its charge. The risk of loss or damage to the goods is transferred from seller to buyer at that time.

FAS or " Free Alongside Ship " requires the seller to deliver the goods alongside the ship on the quay. From that point on, the buyer bears all costs and risks of loss and damage to the goods. FAS requires the buyer to clear the goods for export and pay the cost of loading the goods.

FOB or " Free On Board ": the goods are placed on board the ship by the seller at a port of shipment named in the sales agreement. The risk of loss of or damage to the goods is transferred to the buyer when the goods pass the ship's rail (i.e., off the dock and placed on the ship). The seller pays the cost of loading the goods.

 

C - group: used where the seller can arrange and pay for most of the freight charges up to the foreign country.

CIF " Cost, Insurance, and Freight " means that the seller must contract with the insurer and pay the insurance premium. Insurance is generally important in international shipping because transport companies have restricted liability for loss or damage.

 

D - group: used where the seller can pay for most of the delivery charges to the destination country.

DAF " Delivered At Frontier " means that the seller's obligations are fulfilled when the goods have arrived at the frontier but before the customs border of the country named in the sales contract. The term is primarily used when goods are carried by rail or truck. The seller bears the full cost and risk in delivering the goods up to this point, but the buyer must arrange and pay for the goods to clear customs.

DES " Delivered Ex-Ship " means the seller makes the goods available to the buyer on board the ship at the destination named in the sales contract. The seller bears the full cost and risk involved in bringing the goods there. The cost of unloading the goods and any customs duties must be paid by the buyer.

DDP " Delivery/Duty Paid " represents the seller's maximum obligation. The term "DDP" is generally followed by words indicating the buyer's premises. It notes that the seller bears all risks and all costs until the goods are delivered. This term can be used irrespective of the mode of transport. If the parties wish to make clear that the seller is not responsible for certain costs, additional word should be added (for example, "delivered duty paid exclusive of VAT and/or taxes").

It is not compulsory to use incoterms. However when things go wrong and disputes arise it is much easier to sort out who is responsible for what if incoterms have been written into the shipping contract. To be safe, incoterms should be decided upon in the negotiationphase of any international purchasing contract.

 

 

VOCABULARY

freight	- фрахт, стоимость перевозки; груз
collection	- получение денег (по векселям и т.п.), инкассирование, инкассо
collect freight	- условие об уплате фрахта в пункте назначения после сдачи груза
prepaid	- уплаченный заранее
cash on delivery collect on delivery (COD)	- наложенный платеж, оплата по (при) доставке: способ расчетов, при котором оплата производится после доставки товара
International Chamber of Commerce (ICC)	- Международная торговая палата, МТП
Incoterms International Commercial Terms	- Инкотермс, "Международные коммерческие условия": ряд терминов, определяющих условия поставки и момент перехода ответственности от стороны к стороне
ex works EXW	- франко-завод, франко-предприятие, с завода (рудника, склада, предприятия), самовывоз: условие договора купли-продажи, при котором обязанностью продавца является предоставление товара в распоряжение покупателя на своем предприятии или складе, при этом покупатель несет ответственность за погрузку и транспортировку груза
FCA Free Carrier	- франко-перевозчик: условие в торговом контракте, означающее, что продавец несет ответственность за товары и оплачивает все расходы по транспортировке и страхованию товаров до тех пор, пока товары не перейдут в распоряжение выбранного покупателем перевозчика
FAS Free Alongside Ship	- франко вдоль борта судна, свободно вдоль борта судна, фас: условие торгового контракта, согласно которому продавец несет все расходы по страхованию и транспортировке груза вплоть до доставки товара к борту судна
FOB Free On Board	- свободно на борту, франко-борт, фоб: условие внешнеторгового контракта, означающее, что транспортные, страховые и погрузочные расходы вплоть до завершения погрузки товара несет экспортер (продавец), т. е. они включаются в цену; право собственности переходит к покупателю с момента завершения погрузки
CIF Cost, Insurance, and Freight	- стоимость, страхование, фрахт (СИФ): условие контракта, означающее, что экспортер несет расходы по доставке товара в порт отгрузки, его страхованию, погрузке и фрахту до порта назначения; импортер оплачивает оговоренную цену товара после предъявления через банк документов (коносамента, страхового полиса, счета-фактуры).
DAF Delivered At Frontier	- "доставлено на границу"; употребляется с указанием места; ответственность продавца заканчивается, когда товар подготовлен к экспорту и доставлен в указанный пункт у границы
DES Delivered Ex-Ship	- оставлено (поставлено) с судна, поставлено (доставлено) франко-судно: условие торгового контракта, означающее, что ответственность продавца заканчивается, когда корабль с товаром на борту прибыл в указанный порт (товар не разгружен)
DDP Delivery/Duty Paid	- "доставлено, пошлина оплачена": условие в торговом контракте, означающее, что ответственность продавца заканчивается после того, как товар доставлен в указанное место в стране покупателя

COMPREHENSION QUESTIONS:

1) What are the most common terms in transportation and why?

2) What do the words “collect” and “prepaid” indicate?

3) When is delivery effected on COD terms?

4) What do Incoterms imply?

5) What four groups are Incoterms divided into?

6) What do FOB (CIF/DAF/DDP/EXW) terms cover?

 

VOCABULARY PRACTICE

Freight terms are a crucial aspect of transportation and logistics because it has to do with money.

Rather than having the freight bill sent to either the shipper or the consignee, the freight may be billed to a third party.

What are INCOTERMS or, to give it the full title, International Commercial Terms? They are the official rules for the interpretation of trade terms; the international standard for defining the respective responsibilities at the various stages of the shipping process.

In international trade, it would be best for exporters to refrain, wherever possible, from dealing in trade terms that would hold the seller responsible for the import customs clearance and/or payment of import customs duties and taxes and/or other costs and risks at the buyer's end, for example the trade terms DDP.

Similarly, it would be best for importers not to deal in EXW, which would hold the buyer responsible for the export customs clearance, payment of export customs charges and taxes, and other costs and risks at the seller's end.

The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.

CIF terms provide for the cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks.

 

TEXT TO TRANSLATE:

77. Negotiation Strategies

With enough volume, almost anything is negotiable. This is one of the cardinal rules of freight negotiation. The only thing that you absolutely cannot negotiate is the thing you don't mention. Always negotiate from a position of strength. Know your business. Telling a carrier that you have a lot of freight doesn't help. Have all of your facts and figures together.

You should, at minimum, know:

- Frequency of shipment - number of shipments per day, week, month, etc.

- Freight volume - tonnage shipped or revenue paid to your present carrier for a definite period of time

- How quickly you pay your bills - carriers want to be paid on time. If you are a slow payer, you will be less likely to get a good rate agreement

- What is the time your freight will be available for pick-up -carriers need to see how well you fit into their current schedule

- Where are you shipping to and how much volume to each state/region - carriers need this to determine if your operation fits-in with theirs

- Detailed description of the commodity(ies) you are shipping and their respective class ratings - carriers need to know what they are moving to determine the specific nature of the freight and how economical or costly it will be for them to move it

- The percentage of prepaid vs. collect freight. Prepaid freight is that paid by the shipper. Collect freight is that paid by the consignee. Carrier discounts only apply to the payer of the freight bill. Carriers need to know how much of your freight will be covered by your discount.

There are other factors to consider, and actually, the more information you can provide, the more accurately a carrier can assess your account.

VOCABULARY:

freight rates – грузовой тариф

class rate – классный тариф (ставка согласно классификации грузов)

class rate system – классификационная система грузовых тарифов

commodity rates – товарный тариф

 

VOCABULARY CHECK

1) При транспортировке грузов «инкассо» означает, что стоимость фрахта оплачивается грузополучателем.

2) В случае, если счет не высылается ни грузоотправителю, ни грузополучателю, он может быть направлен третьей стороне.

3) Если вы не доверяете своему клиенту, то поставка товара может быть осуществлена на условиях COD – уплата наличными при доставке.

4) Инкотермс – это международные термины, определяющие условия поставки и момент перехода ответственности от продавца к покупателю.

5) Один из вопросов, затронутых на этой конференции, касался страхования контейнерных перевозок.

6) ФОБ - базисные условия поставки, согласно которым продавец оплачивает расходы по транспортировке, страхованию, а также таможенные расходы до момента доставки товара на борт судна зафрахтованного покупателем, в согласованном порту погрузки в установленный срок.

7) Фрахт - это плата за перевозку груза; перевозимый на зафрахтованном транспортном средстве (первоначально на судне) груз, а также сама такая перевозка.

8) Базисные условия поставки, при которых товар переходит в распоряжение покупателя уже на предприятии или складе поставщика, называются франко-завод.

9) Базисные условия группы Е предусматривают, что обязанности продавца являются минимальными: он должен лишь предоставить товар в распоряжение покупателя в согласованном месте – обычно в собственном помещении.

10) Существуют два условия, предусматривающие страхование: CIF и CIP. Согласно этим базисным условиям продавец обязан обеспечить страхование в пользу покупателя.

CASE STUDY:

Troubled Waters

While the majority of the top 20 ocean carriers have all gleefully announced their record profits in the last 12 months, most intra-Asian shipping lines have all struggled to remain in the black. Although low freight rates have played a part in this poor performance, rapidly increasing charter hire costs have been the main culprit.

For the South Korean ocean carrier Sinokor Merchant Marine, this has been a big concern. JH Lee, the company's charter team section chief, lamented: "It is very difficult to make money. Sometimes, we decrease the number of vessels we are operating, and we change the vessels in our services many times to obtain the best efficiency, which gives us a chance of contributing to our bottom line". Consequently, the balance between owned and chartered tonnage is crucial.

Lee explained: "Three years ago, most of our fleet consisted of chartered tonnage, but in recent years, as the charter market has gone up so much, this policy has changed, and now we own some of our ships. We have 17 vessels in our fleet, and about 60% of these are now owned. In the past few years, we have bought on the secondhand market, to reduce our exposure to vessel operating costs. Despite this, our charter rates have still tripled in the last two years".

As well as trying to reduce vessel costs Sinokor has had to concentrate on its most profitable trades. In some cases, this has meant reducing the number of vessels deployed, or has even led to the cutting of services. In addition, because freight rates have been so poor, Sinokor's profitability is affected more because its portfolio is based mainly on the South Korea/China trade lane. Nevertheless, in comparative terms, the company has continued to do fairly well financially. In 2003, it had a turnover of USD260 million.

For the future, Sinokor remains optimistic, but at the same time it realizes that long-term profitability and security does not necessarily lie in the intra-Asian trade lanes. Lee explained: "The South Korea/China market is instable, and we need to focus on other routes. But, to do this we need good partners. This is not easy because of the mutual differences in both culture and commercial policies. We tried joint ventures in the past, but they failed because each of us wanted to call at different ports. For the moment, we will reduce our service scope and wait for the charter market to stabilize. Then, we will start introducing new services. We may venture into the transpacific trade. Smaller ocean carriers like us do have a vision to enter into these major trades. It is not just a dream - it will happen within the next five years".