1. Chapter 15 International Logistics

2. International Logistics I. International Logistics - the designing and managing of a system that controls the flow of materials into, through, and out of the international corporation. • Major decision areas: locating plants and warehouses; choice of transportation mode; managing inventory; packaging.

3. The Impact of International Logistics • Logistical costs are 10% to 30% of the total landed cost of an international order. • Factors necessary for the use of logistics as a competitive tool: • Close collaboration with suppliers and customers • Technologically advanced information processing and communication exchange capabilities • An integrated business infrastructure

4. International Transportation Issues • Transportation infrastructure • Roads, rail lines, airports, seaports, pipelines • Availability of transportation modes • Overland shipping, ocean shipping, air shipping • Choice of modes • Transit time, predictability, cost, noneconomic factors • Noneconomic Factors • Government involvement, the UNCTAD and the 40/40/20 concept

5. International Logistics II. Inventory Management Considerations - Carrying costs - Order cycle time - Order cycle consistency - Difficulty in applying service rules

6. International Inventory Issues • Inventory carrying costs can be up to 25% of the value of an inventory • Just-in-Time policies minimize inventory volume by making it available when needed. • Inventories assist in the movement of products. • Factors in deciding on the level of inventory to maintain: • Order cycle time • Desired level of customer service • Use of Inventory as a strategic tool

7. Order Cycle Time • The total time that passes between the placement of an order and the receipt of the merchandise. • Length of the total order cycle • Longer cycle in international marketing than domestic • Consistency of the order cycle • More complicated delivery mode reduces consistency • Altering cycle times • Change transportation methods • Change inventory locations • Change ordering process

8. International Logistics III. Packaging Issues 1) Responsibility of the shipper 2) Climate 3) Shape and weight 4) Environment IV. Methods of Payment

9. Getting PaidForeign Commercial Payments • Letters of Credit • - Revocable • - Irrevocable • Cash in advance • Open Accounts • Forfaiting

10. Who’s Responsible for Costs Under Various Terms? FOB (Free on FOB (Free on FAS (Free CIF (Cost Board) Inland Board) Inland Along Side) Insurance, Carrier at Carrier at Vessel or Freight) at Factory Points of Plane at Port Port of Shipment of Shipment Destination Export packing* Buyer Seller Seller Seller Inland freight Buyer Seller Seller Seller Port charges Buyer Buyer Seller Seller Forwarder's fee Buyer Buyer Buyer Seller Consular fee Buyer Buyer Buyer Buyer ** Loading on vessel orplane Buyer Buyer Buyer Seller Ocean freight Buyer Buyer Buyer Seller Cargo insurance Buyer Buyer Buyer Seller Customs duties Buyer Buyer Buyer Buyer Ownership of When goods on When goods When goods When goods goods passes board an inland unloaded by alongside on board air carrier (truck, rail, inland carrier carrier, in or ocean etc.) or in hands hands of air carrier at port of inland carrier or ocean carrier of shipment 15-15 * Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes controversial. ** The seller has responsibility to arrange for consular invoices (and other documents requested by buyer's government). According to official definitions, buyer pays fees, but sometimes as a matter of practice, seller included in quotations. Irwin/McGraw-Hill

11. The Exporting Process Leaving the Exporting Country Physical Distribution Entering the Importing Country LicensesGeneralValidated DocumentationExport declarationCommercial invoiceBill of ladingConsular invoiceSpecial certificatesOther documents International shipping and logistics Packing Insurance Tariffs, Taxes Non-tariff Barriers Standards Inspection Documentation Quotas Fees Licenses Special certificates Exchange permits Other barriers 15-3 Irwin/McGraw-Hill

12. Export Administration Regulations (EAR) • A new country and commodity classification system has been devised, making it the exporter’s responsibility to select the proper classification number for an item to be exported. • The exporter must decide if there are end-use restrictions on the items, such as their possible use in the development of nuclear, chemical, and biological weapons. • The exporter now has the responsibility to determine the ultimate end customer and ultimate end uses, regardless of who may be the initial buyer, or face the legal consequences of doing business with unauthorized trading partners. • A special category for the control of encryption-related products has been established. 15-4 Irwin/McGraw-Hill

13. Structure of International Distribution Systems International Marketing Channel Alternatives Manufacturer Home Country Channel Members Export Management Company Export Agent Direct Import Intermediary Foreign Country Channel Members Local Wholesaler or Agent Industrial User Retailer Consumer