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TRANSPORTATION & LOGISTICS PROCUREMENT:

TRANSPORTATION & LOGISTICS PROCUREMENT:. It’s Not as Easy (nor as hard) As It Looks ISM NY/NJ Forum October 29, 2011. George Yarusavage. Words of Wisdom. “When you come to a fork in the road, TAKE IT!” – Yogi Berra. “FOB” is a Fork in the Road. FOB isn’t a full instruction

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TRANSPORTATION & LOGISTICS PROCUREMENT:

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  1. TRANSPORTATION & LOGISTICSPROCUREMENT: It’s Not as Easy (nor as hard) As It Looks ISM NY/NJ Forum October 29, 2011 George Yarusavage

  2. Words of Wisdom “When you come to a fork in the road, TAKE IT!” – Yogi Berra

  3. “FOB” is a Fork in the Road • FOB isn’t a full instruction • “Ship it to me FOB” • What does FOB really mean? • In the U.S.? • Internationally?

  4. “FOB” is a Multi-Fork • The FOB fork has MANY paths: • FOB Origin • FOB Destination • Collect • Prepaid • Allowed • Charged Back • Equalized

  5. Freight Cost Protection “Supplier agrees to ship all products to Buyer FOB Destination, Freight Collect.” - Pros - Surest cost control - You select carriers

  6. Freight Cost Protection “Supplier agrees to ship all products to Buyer FOB Destination, Freight Collect.” - Cons - Needs more management effort - Doubles the bills to pay & audit

  7. Freight Cost Protection “Supplier agrees to ship all products to Buyer FOB Destination, Freight Prepaid, and that all freight charges invoiced to Buyer shall reflect Supplier’s true net transportation costs, inclusive of all discounts, refunds, rebates and any other pricing incentives.”

  8. Freight Cost Protection “…FOB Destination, Freight Prepaid…” - Pros - Lowest management effort - Supplier manages costs

  9. Freight Cost Protection “…FOB Destination, Freight Prepaid...” - Cons - Supplier manages your costs - Costs must still be audited

  10. Freight Cost Protection “Supplier agrees to” …… negotiate for the best language you can get that protects you!

  11. Freight Negotiability Factors • Supplier’s size • Your size • Relative transportation clout • Product characteristics • Transportation’s % of value

  12. Choosing Carriers • Mission Impossible? • Or Gilligan’s Island? • What would Jim Phelps do? • What would the Skipper do?

  13. Which Carrier is the ‘Best’ Fit? • Not ‘Best Way’! • Service needs • What exactly is “On Time?” • Data needs • Supplier’s needs & restrictions • Reverse Logistics?

  14. Choosing Carriers • Research Candidates • Ask around • Ask your supplier • And also ask your supplier: • What dumb things do you do for us? • Do our requirements add cost? • Do our requirements fuel failure?

  15. Choosing Carriers • Research Candidates • Ask your transportation manager • Ask any transportation manager • Go to www.carriername.com • Interview sales reps • Visit offices & operations

  16. Choosing Carriers • Qualify Finalists • Financials • D&B report • Insurance certificates • Safety ratings (www.safersys.org) • Research on the web

  17. Choosing Carriers • Qualify Finalists • Service guides • Rules tariffs • Accessorials • Dim weight factor(s) (D/I) • Payment terms

  18. Choosing Carriers • Qualify Finalists • Limited liability • Loss & damage process • Over/undercharge claims • Test shipments • Try web tracking & other tools

  19. Choosing Carriers • Choose Finalists • Relationship or not? • Join a consortium? • Run a bid process? • Sign contracts? • (B/Ls & Airbills are contracts)

  20. Typical Contract Provisions • Rates – application & escalation • Confidentiality • Surcharges – up AND down • Payment method & terms • Default to rules, tariffs, public and/or private publications • No unapproved subcontracting

  21. Typical Contract Provisions • Documentation (B/L, etc.) • Coverage • Sites • Subsidiaries/affiliates • Commodities included/excluded • Damages process • Salvage control

  22. Typical Contract Provisions • Liability – Limited or Common? • Insurance vs. ‘Valuation’ • Productivity offsets • Scope • Escape clause • Indemnity

  23. Typical Contract Provisions • Entire Agreement • Definitions • Severability • Force Majeure • Venue • Dispute settlement

  24. Typical Contract Provisions • Measures of loss • Inspection rules/inspector • Legal notices • Renegotiation conditions • Key Performance Indicators • Default & remedies

  25. Typical Contract Provisions • Dispute settlement • Venue • Term • Renewal • Termination • Volume commitment

  26. Typical Contract Provisions • Regular services • Special services • Other logistics services • Service exemption conditions • Service incentives & penalties • Cannot depend on the UCC

  27. Special Services • Extra or later pickups • Diversion & reconsignment • Shipment splitting • Expediting • De-expediting • Packaging/repackaging/unitizing

  28. Special Services • Strategic cities/hot spares • Consolidated deliveries • Consolidated pickups • Milk runs • Stop-offs • Reverse Logistics

  29. $1 Million Contract Provision • “Protection” clause: “Carrier and Shipper agree that Carrier’s Rules Tariff # (XXX), effective (MM/DD/YYYY) and as modified by any provisions within this Contract or its Schedules or Amendments, shall apply to all shipments tendered to Carrier by Shipper and shall be frozen against any changes unless accepted in writing by Shipper as a mutually-signed Amendment to this Contract.”

  30. Relative Economics • Parcel vs. LTL vs. Truckload • Air vs. Expedited Ground • Overnight Air vs. 2, 3, 4 Day ‘Air’ • Air Express vs. Courier • Air vs. Ocean • Carriers vs. NVOCCs • Brokers vs. Forwarders • 3PL, 4 PL/LLP

  31. Other Logistics Services2PLs, 3PLs, LLPs • Assembly & distribution • Timed delivery • Timed pickup • P.O. management • Physical office presence

  32. Other Logistics Services2PLs, 3PLs, LLPs • “Warehousing” • Physical assembly • Kitting • Data management • Expertise

  33. Once You Are “Finished” • Establish a partnership • Ask “What dumb things ….” • Solicit ideas • Monitor & improve • You’re never finished, but

  34. Mission Possible • You have become Jim Phelps • You have a crack team • You are ready • (Or at least more ready than the Skipper!)

  35. International Issues • Incoterms • 2010 has 11 vs. 2000 with 13 • Control the transaction • Not laws, but legally enforceable • Agreed conventions • The book costs 65 Euros • See www.iccwbo.org • Details in another session!

  36. International Issues • Language • “No Kill I” • Even English may not be English • “Finnglish” • Culture • Pay attention • Yes may not be yes

  37. International Issues • Many Regulations Apply • Import quotas • Duty rates • NAFTA, CAFTA, etc. • COGSA/Hague Rules • FDA & other requirements • Harmonized Code

  38. International Issues • The Harmonized Code (HS) • Worldwide (WCO) • Very specific – 10 digits: 6, 2, 2 • Over 10,000 descriptions • Based on material & function • Required by Customs • Goods only (UNSPSC has services)

  39. International Concerns • U.S. Security Issues • C-TPAT • ISF (ex 10 + 2) • 24/12/4 hour manifests • Whole container X-rays • Impact on 3rd World suppliers

  40. International Concerns • Exports • Remember drawback • Tighter U.S. licensing • ‘Denied Parties’ list • Other nations’ higher security • Anti-boycott regulations • Use correct Harmonized Codes

  41. International Concerns • Jet Fuel Price Indices • Lufthansa • U.S. Gulf • Bunker Fuel Costs • $XXX/TEU/trade lane surcharges • Cleaner fuels in port • “Cold Ironing”

  42. International Concerns • Loss of Capacity or Service • Smaller planes • Fewer flights • CRAF • VISA ships • Piracy • Slow steaming

  43. International Concerns • Loss of Manpower • CRAF • Reserves/National Guard • Ready Reserve ships • Background checks • New I.D.s

  44. Other Concerns • Hazardous Materials • Personal penalties • Corporate penalties • Training required • ‘Security Awareness’ required • Authorized carriers ONLY!

  45. Other Concerns • How Will You Handle: • Transport delays • Product loss • Rules changes (HOS impact) • Customs issues • Customs holds or seizures • Any other problem

  46. Today’s Main Points • Manage the forks in the road • Negotiate reasonable terms • But cover all needs & exposures • Be prepared • Be Jim Phelps

  47. Questions? Thank You!

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