International Logistics - from a Jamaican Perspective Team CE: Anika Brooks Jason Dunn Kevin Gallimore January 29, 2011
Objectives • Define international logistics • Focus on international logistics as it relates to Jamaica and show its importance. • Cite some of cases that show elements of international logistics – documentation requirements, regulations, information flow etc.
International Logistics • Logistics, in its most basic definition, is the efficient flow and storage of goods from their point of origin to the point of consumption • International Logistics is specific to goods that are sold across national boundaries. • International logistics is both more costly and more challenging than domestic logistics because of the external factors that come into play.
International Logistics Cont’d Advantages of international logistics • The main advantage of international logistics is increased trade resulting in economic growth. • The flow of goods and services across national borders can improve the economic health of a country as it immediately provides a larger market for goods and services available. • It is usually a good practice to export to countries that have higher relative value currency as this is more profitable.
International Logistics Cont’d Disadvantages of international logistics • Longer lead times is a feature of items procured internationally. • Transit times will vary depending on the mode of transportation used, the point of origin and other external factors (e.g. weather conditions, piracy). Transport with shorter transit times are usually more costly. • As a result, more safety/buffer stock is required to mitigate against lost sales during shipping. This increases the inventory holding cost. • Trades-off between transportation cost and inventory holding cost must be weighed.
International Logistics Cont’d Barriers/Challenges: • There are a combination of factors that may hinder smooth logistics operations. • Differences in the native language of the shipper and importer can have serious implications. • Labeling of cargo must be done in the native language of the importer. If not, the importer may be charged a hefty fine or be required to re-export the cargo. In some cases, the cargo may even be ordered destroyed at the importer’s expense. • Information flow may be affected by lack of a common language or misunderstandings may develop due to faulty translation.
International Logistics Cont’d • National holidays for the supplier and importer may not coincide. Documentation may be delayed due to the closure of government agencies or order processing may come to a halt unless other arrangements are made before-hand. • Documentation requirements for import and export varies from country to country and may even be specific to the origin of the shipment. • One example of this is the CARICOM Certificate of Value and Origin which must accompany shipments between CARICOM member states (Antigua and Barbuda, Barbados, The Bahamas, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago).
International Logistics Cont’d • All international shipments must be accompanied by an invoice and bill of lading • Other types of documents required will vary depending on the product being traded. Health Certificate Phytosanitary Certificate Fumigation Certificate Certificate of Analysis Certificate of Origin • Government Restrictions and Political Decisions may also serve as barriers to international logistics.
International Logistics Cont’d • Government restrictions and political decisions may also serve as barriers to international logistics. • Tariffs, licenses, permits, quotas and waivers are regulated by various Government Ministries and are used to determine what items can be traded internationally and may even specify the quantity. Tariffs/Taxes – charged for the importation of products that can be sourced locally to protect the local industry Licenses - awarded to select importers and specifies particular products Quotas – limit the amount of an item that can be traded (can be either import or export) Waivers - allow importers to pay reduced or zero import duty (widely used by manufacturers to import raw materials)
Terms of Sale – INCOTERMS® • The international Chamber of Commerce (ICC) is a global business organisation which seeks to foster economic growth, job creation and prosperity in the global economy. • The ICC’s INCOTERMS ® (International Commercial Terms) are standard international trade definitions used in numerous sales agreements and contracts daily and are widely accepted by governments and legal professionals worldwide. • INCOTERMS® are used to divide transaction costs & responsibilities between the buyer & seller • The first set of INCOTERMS® rules were set in 1936. The most recent publication is INCOTERMS® 2010 which became effective January 1, 2011.
Any mode of transport EXW Ex Works DDP Delivered Duty Paid FCA Free Carrier DAP Delivered At Place CPT Carriage Paid To DAT Delivered At Terminal CIP Carriage And Insurance Paid To Sea and inland waterway transport FAS Free Alongside Ship FOB Free On Board CFR Cost And FreightCIF Cost, Insurance and Freight Terms of Sale – INCOTERMS® Cont’d The 11 INCOTERMS ® 2010 rules are as follows:
Jamaica • Based on Jamaica’s relatively weak value of currency, the aim should be to export rather than import. However this is not the case. • Mineral fuels are the top contributors to Jamaica's import bill followed by food items (sourced from Venezuela, Trinidad & Tobago, Ecuador and Mexico). • According to 2008 estimates, 40% of the exports were to the US, 10.7% for Canada, 9.3% for Netherlands, 5.4% for France and 5.3% for Russia, according to 2008 estimates
Jamaica’s Location • Jamaica’s unique location in the central Caribbean and proximity to the United States allows for its use as a hub for maritime trade. • In 2007, it was reported that 39% of all imports to Jamaica originated in the United States. • Jamaica is also home to the 7th largest natural harbor in the world - Kingston Harbour.
Example #1 – Government Procurement of Primary School Textbooks Problem Background/Scenario: • Through the Primary Textbook Program, the Ministry of Education provides textbooks for primary school students island-wide • For the second consecutive year, the books were supplied after the beginning of the first term. • Distribution of books for the 2010/2011 Academic Year did not start until January 3, 2011. • Ministry officials suggested that the delay was due to an increase in the price of the books (in pound sterling) from the amount calculated prior to the start of the academic year.
Example #1 Cont’d – Government Procurement of Primary School Textbooks Examining aspects of international logistics: • Logistics, whether domestic or international, is based on effective planning, implementation and control. In this example, it is evident that poor planning was a factor. • A combination of challenges is likely to have created this embarrassing situation, rather than just an increase in the purchase price. • The currency of the purchase is an important factor. Even a small price increase would translate to a significant increase in the Jamaican dollar value based on the exchange rate.
Example #1 Cont’d – Government Procurement of Primary School Textbooks
Example #1 Cont’d – Government Procurement of Primary School Textbooks • One other possible challenge could have been improper transportation management. It would have been prudent for Ministry Officials to consider the lead time from order acceptance to the arrival of texts in Jamaica. Suggestions for improvement: • Backwards Planning could be utilized to prevent a recurrence. With this method, the start date for the procurement process would be calculated backwards from the intended date for the start of the next academic year.
Example #2 - Oil Problem Background/Scenario: • The Jamaican economy is heavily dependent on imported fuel. As a net importer of fuel, the country is susceptible to the volatilities of the world oil market – both in terms of supply and the price of oil. • In 2008, Jamaica’s oil import bill was US$2.8 billion. In 2009, the oil import bill dropped to US$1.3 billion due largely to the downturn in the bauxite and alumina sector, which saw the closure of 3 of the 4 alumina plants. • Higher oil prices have a significant impact on Jamaica’s balance of payments and the current account deficit. In 2009, the current account deficit had fallen to an accumulated total of US$3.7 billion.
Example #2 Cont’d - Oil • The oil bill, at US$393 million, not only increased nominally by US$88 million in the Q1, but rose proportionately from 25% of total imports in the 2009 period to 34% - due to a return to volatility in world prices that, in the past few weeks, have swung between US$71 & US$91 per barrel. • Jamaica’s energy needs are fully met by petroleum imports. • This increasing reliance on imports to meet local demand has resulted in Jamaica having a sizeable merchandise trade deficit due to its large-scale import of oil and food items. • Mineral fuels are the top contributors to Jamaica’s import bill followed by food items.
Example #2 Cont’d - Oil • Examining aspects of int’l logistics: • Petroleum supplies appear to be plentiful, but easily extractable petroleum is becoming scarce and extraction from deep offshore sources is both expensive and more risky, as demonstrated by the recent Gulf spills. • Negotiations are carried out by a competent and authorized team of strong negotiators with skills in the oil trade along with GOJ representation. • Petroleum products are mainly imported from Petrotrin (Trinidad), Petro Caribe (Venezuela), Ecuador of Mexico. • The evaluation of freight rates for product imports are based on international benchmark rates published by Worlds Scale and AFRA (Average Freight Rate Assessment).
Example #2 Cont’d - Oil Petrojam Refinery Jamaica has developed its first long-term energy policy facilitating the establishment of a comprehensive program of efficiency, improvement and energy diversification to provide high quality, affordable, environmentally friendly energy and to reduce the country’s dependence on high-cost imported oil.
Improvements/Diversification • The formulation and implementation of the National Energy Policy (NEP) 2009-2030 is critical in helping Jamaica to achieve overall sustained national development. • The NEP promotes the development of renewable energy sources – specifically solar, wind, mini-hydro, biofuels/biomass including bagasse – and a reduced carbon footprint. • Jamaica has identified two areas of renewable energy viability. First, the use of ethanol (and eventually biodiesel) to substitute and conserve the use of imported petroleum. • The GOJ is hoping to reduce the national dependence on petroleum imports with the use of ethanol; a 10 % fuel enhancer in Jamaican gasoline.
Improvements/Diversification cont’d • Second, the use of energy generated from renewable sources to supplement and retire some of the current generation from oil-consuming units. • The NEP policy also promotes energy sufficiency and security of energy supplies through facilitating negotiations to ensure stable and adequate energy supplies at least cost, for example, the San Jose Accord, Petro Caribe, Nigerian agreements and Ecuadorian crude oil purchases. • The major oil suppliers are in politically volatile regions of the world (civil unrest & piracy) which can drive up freight and insurance rates • It is not guaranteed that Jamaica will continue to receive supplies indefinitely in lieu of a contract, therefore supplies should be contracted.
Solar-wind hybrid Solar-panel Solar-wind combo Wind turbines at Wigton Wind farm
Case Study • Captain Bill owns The Bill Lions Resorts in Jamaica which extends to 14 properties across the island offering various products and services. His Logistics Department from time to time gets involved in projects involving the Marketing Team. • Captain Bill is now interested in further separating his company from the competition. The Marketing Team has drafted a proposal which introduces a piece of Jamaica’s history within his all inclusive resorts. • The marketing team has advised Captain Bill of a lead time of one year to completely get their proposal fully executed and a further 2 ½ years to meet the MARR (Minimum Attractive Rate of Return) requirement set by Captain Bill.
Case Study • Captain Bill has expressed his discomfort with the lead time for full execution and has instructed his Market Team to reduce the implementation time to 6 months • The proposal involves introducing infrastructures, themed activities, strong Jamaican decor or in other words an artistic representation of Jamaica’s history which has the flexibility to change theme according to season or particular months of the year. • Despite its Jamaican theme it might not be logical to purchase everything locally since the quantity required should cover the 14 properties with the limited time stated by Captain Bill.
Proposal The Marketing Team’s Proposal • Christopher Columbus’ Arrival – Arawak huts, miniature version of the Santa Maria, costumes. • The ship will house a Mediterranean Restaurant while the Arawak huts will serve as gift shops Items to be imported: • Miniature Santa Maria • Customized light fixtures • Customised furniture
Case Study • The Black Star Line – half of a ship sized to the dimensions of a two-story building with fibre glass external to virtually authenticate the appearance of the Black Star Liner in its time. • The ship will function as a restaurant featuring local cuisine and costumed attendants. Items to be imported: • External fibreglass cladding
Case Study • Samuel Sharpe Rebellion – Simple decor of cane piece and bonfire with slight modification to accommodate a stage. • Setting will have 3-D illusions on fabricated walls to provide a feeling of open space and to complement this glass roofing panels would be installed be used as an entertainment pavilion. Items to be imported: • Glass inter-locking panels
Case Study • Heroes – A wax museum would be constructed to feature all 7 of Jamaica’s National Heroes. • Artefacts will be included to support the era of each hero and prime minister such as horse and carriages, cars, pots, guns, machetes etc. Items to be imported: • Wax Statues
Special Considerations For all items to be imported, the Logistics Department must have the weight and cube so they will be able to negotiate and arrange freight. Christopher Columbus’ Arrival • The ship will be made overseas and assembled in Jamaica. • Transportation of items to each property will need careful coordination. Based on the size of the unit, no intermediate storage facility between the port and resorts will be required. Black Star Line • Cladding material to authenticate the features of the ship will be sourced internationally. • Cladding should not arrive before construction of the frame is completed (JIT).
Special Considerations Samuel Sharpe Rebellion • Inter-locking glass panels to be used for roofing will be sourced internationally. • Panels must be crated for handling and transportation. Wax Statues • Wax statues will be designed and built overseas. • The statues will have to be shipped in refrigerated (reefer) containers to regulate the temperature. • The terms of purchase will ensure that the supplier's responsibility extends well beyond the factory door.
Challenges What are the challenges the Logistics Team will encounter if they were working with the revised 6-month timeline set by the Captain Bill? • Limited time in which to collect and compare freight rates for the various lanes required may result in higher rates being charged. • Timely receipt of information on orders specifications for container cubing and freight contract negotiations will impact the terms of such contracts. • Required ETAs must be communicated by the Project Manager to ensure materials arrive when required.
Challenges What suggestions can you offer both Marketing and Logistics Team so they can meet the timeline set by Captain Bill? • Success of the Logistics Team will rely heavily on the inflow of information and they should be included early in the planning process (Concurrent Engineering).
Summary • Jamaica’s economy relies heavily on international logistics, with oil is the most frequent import. • Jamaica is a small island, so most things used come from external sources • The presentation focused on int’l logistics at the macro-level, but Jamaica has a vibrant Informal Commercial Importer (ICI) culture at the micro-level. • The level of import far exceeds export, major items exported are alumina, bauxite, sugar, rum, coffee, yams, beverages, chemicals, wearing apparel and mineral fuels. • In today’s global marketplace, with Jamaica’s strategic location and unique offerings the country is poised for tapping into new markets to increase the level of export and significantly reduce our trade deficit.
References • Contemporary Logistics 9th edition, Paul R. Murphy, Jr. & Donald F. Wood. • http://www.wisegeek.com/what-is-logistics.htm • http://go-jamaica.com/news/read_article.php?id=25392 • http://jamaica-gleaner.com/gleaner/20101230/lead/lead5.html • http://www.jamaicaobserver.com/news/Textbook-shortage-hits-primary-schools_8220286 • http://www.boj.org.jm/searchfx.php?iAll=0&iUSD=0&iGBP=1&iCAD=0&strFromDate=07/01/2010&strToDate=10/31/2010&both=0&rate=1&volume=0&tenday=0&high=0&low=0>two=1 • http://www.svcc.edu/UserMenu/current/studentactivities/leadership/back-plan.html • http://www.fibre2fashion.com/industry-article/market-research-industry-reports/global-logistics-scenario/global-logistics-scenario2.asp • http://www.winverpublishing.com/memberstates.php5
References Cont’d • http://www.eclac.cl/publicaciones/xml/4/40254/LCG2458_Jamaica_-_English_2.pdf • http://rjrnewsonline.com/search/node/waivers • http://rjrnewsonline.com/business/new-tax-waiver-conditions • http://jamaica-gleaner.com/gleaner/20100331/business/business91.html • http://go-jamaica.com/news/read_article.php?id=23802 • http://www.buyusa.gov/caribbean/en/jamaica.html • http://www.tradingeconomics.com/jamaica/gdp-based-on-purchasing-power-parity-ppp-valuation-of-country-gdp-imf-data.html • http://www.nepa.gov.jm/student/resource-material/pdf/Kingston_Harbour_and_its_Heritage.pdf