Ad Hoc Logistics currently assisting a New Hampshire electronics distributor with EEI (Electronic Export Information) filing options.
EEI has replaced the paper SED (Shippers Export Declaration) forms.
What are Incoterms?
Incoterms are rules used to facilitate global trade. Incoterms were created and are administered by the International Chamber of Commerce and are updated every 10 years. Incoterms 2010 published by ICC Services Publications, Paris FR is a very good reference. Some of the important points covered in the book are:
- Incoterms must be in the contract of sale to apply
- > 120 countries have endorsed Incoterms 2010
- Now 11 rules in 2 groups
- 2 new rules deal with geographic place
- Incoterms is not a law…older versions can be used as long as all parties agree
- Incoterms replaces Uniform Commercial Code (UCC) in domestic commerce
- for reference www.iccbooksusa.com
- Incoterms cover;
- Who does what
- Who pays for what
- When risk of goods passes from seller to buyer
- Who is responsible for insurance, export clearance, import clearance, and other costs pertaining to delivery of goods
- Incoterms do not cover;
- Ownership or title to goods
- Payment terms
- Detailed requirements
- Complete contract of sale
Incoterms 2010 includes several rules changes:
- Now referred to as rules not terms
- Remove DAF DES DDU DEQ
- New Rules DAT DAP
- 2 Groups…Any Mode and Ocean/Inland Waterway Only
- Any Mode…EXW FCA CPT CIP DAT DAP DDP
- Ocean or Inland Waterway Only…FAS FOB CFR CIF
Attached chart is a quick guide to Incoterms 2010
Rate Expectations
Logistics Management magazine hosted a very informative webinar on Jan 30th which featured a number of experts discussing managing costs via multiple modes. The speakers presented forecasts of rates and capacity in their respective areas of expertise. They also offered advice to shippers. Here are my takeaways from the webcast:
Trucking
- Large and small fleets are reducing fleet size but replacing older equipment with newer, more fuel efficient units resulting in not much change in overall TL capacity
- Flat demand plus trend towards Supply Chain Optimization will delay capacity crisis in trucking industry
- LTL rates hikes approx. 1-3% in 2014 if YRC survives and could be as much as 7-9% if YRC does not survive
- Capacity issues may surface in 2016-2017 due to more restrictive regulations and driver shortages
- Shippers are advised to develop partnerships with a small number of core carriers to maintain service levels if capacity does become an issue
Rail and Intermodal
- Intermodal volume will grow 4-5% in 2014
- Railroads continue to improve OR’s on the strength of intermodal
- Although intermodal demand is up rate increases expected to be modest due to pressure on OTR rates
- Shippers are advised to have contingency plans in place in the event of rail disruptions due to catastrophic events or natural disaster
Air Cargo
- Load factors increasing
- On shoring or Near Shoring trends worrisome to air cargo operators
- Air cargo rate making differs by geography and capacity is the major factor
- Fuel costs always a concern
- Carriers will continue to replace older aircraft with newer, more fuel efficient, planes
- Carriers will continue to manage capacity to control costs and improve load factors
Container Shipping Rates
- Global supply/demand balance will not reach equilibrium until 2016
- Excess supply continues in 2014
- Rates, especially spot rates, will be volatile as carriers manage demand
- East-West rates will fall 1.5% in 2014
- Global rates flat after falling 5% in 2013. Little change in 2014
- Risk to shippers is carriers may skip sailings due to volatility but no real capacity shortage
- Shippers advised to develop relationships with carriers to ensure access to capacity
Parcel
- Duopoly enables carriers to raise rates in 2014
- FedEx + 3.9%
- UPS + 4.9%
- DHL +3.9%
- USPS +2.4%
Importing Due Diligence
Our previous post suggested an annual review of Harmonized Tariff descriptions as a good business practice. Another good practice is to make sure you are taking advantage of regulations that allow importing on a duty free or preferential basis. Here are a few items for your annual customs review. Contact Ad Hoc Logistics if you need help.
- Classification– review annual updates to Harmonized Tariff to make sure your codes and descriptions are accurate. Proper classification and valuation of imported goods are the first step in compliance. If you do nothing else, do this.
- Duty Drawback– this is a refund of duties paid on imports that are later exported. Record keeping is key here.
- Chapter 98 of the Harmonized Tariff allows duty free entry of certain categories of goods. Examples are: American Goods Returned, American Goods Repaired or Altered Abroad, and American Components Assembled Abroad.
- Trade agreements– programs which allow duty free or reduced duty rate entries. There are many agreements (such as NAFTA) in place.
- Customs rulings– consider requesting formal customs rulings prior to large transactions. This ensures compliance and eliminates uncertainty about imports. Rulings can be requested thru the CBP website.
- Correcting errors– when an entry mistake is discovered it can be corrected by a prior disclosure to CBP. The formal process is a Post-Entry Amendment/Post Summary Correction. A prior disclosure can help mitigate penalties.
Harmonized Tariff Due Diligence
The International Trade Commission publishes updates to the Harmonized Tariff System of the United States (HTSUS) twice per year in January and July. Accurate classification and valuation of imported goods are essential. The Harmonized codes and descriptions filed upon entry determine duty rates or duty free status. Harmonized tariff descriptions also give Customs and Border Protection (CBP) information about what commodities are entering the country and determine if any other agencies such as the FCC or FDA also have jurisdiction. An annual review of your HTSUS codes and database update is a good business practice. Contact your broker or Ad Hoc Logistics if you need help.
Carnets
Ad Hoc Logistics is currently advising an engineering company about international trade show and conference shipments. We are researching pros and cons of using carnets and recommending carriers. Contact mitch@52.91.45.227 if you have similar needs.
Freight Forwarder Outlook
Let me share some observations about the freight forwarder industry at the end of 2013 based on meetings with forwarders and shippers as well as data from trade publications. Contact us for more info.
- Modal shifts from air to ocean will continue as a cost reduction strategy.
- Airlines have improved load factor and profitability by cutting flights. This means less freight capacity overall.
- Air freight forwarders will focus on higher yielding commodities to make up for weak demand and to better utilize existing capacity.
- Shippers looking for full services forwarder with advanced technology and capabilities but still price sensitive.
- Mega forwarders have advantage in buying power, capacity, coverage, and variety of services. They may be at a disadvantage in unique local markets.
- Current ocean freight overcapacity in APAC-US lane leads to erratic rates.
- Dominated by shipping alliances ocean carriers will reduce capacity and put upward pressure on rates.
- While current spot rates (ocean) may be low they will rise in 2014.
Inventory Management Overview
The supply chain functions with the biggest financial impact are inventory and transportation management. Logistics managers tend to focus on transportation decisions as one of their major responsibilities. It is important, however, that all managers in the supply chain have a good understanding of inventory policy. The attached is a brief synopsis of Inventory Management from the textbook Supply Chain Logistics Management .
Supply Chain Certificate Program
I am working with Northern Essex Community College on revisions to their Supply Chain Certificate program for 2014. Planned modules include: Introduction to Supply Chain, Operations, Materials Management/Purchasing, Inventory/Warehousing, Transportation and Logistics, and International Trade. Details will be provided in the Spring/Summer catalog on the NECC website.
Carrier Negotiations
The motor carrier and air freight industries are extremely competitive, giving shippers an advantage in carrier selection and negotiations. A common mistake made by shippers is failing to prepare before meeting with carrier representatives. Another mistake is focusing on price. A better strategy is to emphasize value in your discussions with carriers. If you determine that they have the capabilities to provide quality services, then you can move the discussion to price. Consider: if simply asking for lower rates can result in transportation savings, how much better would the result be with a little preparation? Here are some suggestions from someone who has spent many years on the carrier side of the table.
Determine your specific transportation needs and goals ….for example
- Price- compare net rates (not % off because base rates differ), minimums
- Transit Times/Reliability- including pick up and delivery, terminal services, linehaul
- Inventory Costs- reduced transit time = reduced inventory costs… how transportation adds value
- Product Differentiation- faster, better service as a marketing tool
- Capability/Access- carrier has right equipment in right place at right time
- Security- carriers claim ratio and loss/damage experience
- Relationship- responsiveness and problem solving protocols
Analysis Prior to Negotiation
There is not much advantage to withholding your shipping profile from carriers. Because the industry is so competitive you will get a better deal if transportation providers know what volume they are bidding on and any specific service requirements. If this information is not available to them they will hedge their bets and be less aggressive in their offers. Gather some data and present it. This will give you professional status in the eyes of your carriers. Here is some minimum information needed. Most of it can be found in bill of lading or invoice files.
- Volume/Frequency- # of shipments per day, week, or month
- Weight- average weight per shipment
- Dimensions- standard dimensions, if any… palletized or non palletized…pictures are helpful
- Heaviest Shipping lanes- domestic and international
- Services- priority or economy, express or deferred
- Density- pounds per cubic foot ( for motor carriers)
- Classification- NMFC item numbers (for motor carriers)
- Dimensional Weight or Dim Factor (for air freight forwarders)
- Packaging type- transportation only, display, labeling
- Freight Payment Terms- prepaid, collect, third party
- Control- Who has authority to sign an agreement? Who makes routing decisions?
Request for Proposal/Request for Quotation
A formal RFP or RFQ is an effective way to both reduce transportation costs and gain the value that you need from your carriers. Ad Hoc Logistics can prepare your RFP/ RFQ, get it to the appropriate transportation providers, and even negotiate on your behalf. Get started by contacting Ad Hoc Logistics.