While logistics managers excel in orchestrating the flow of goods from Point A to Point B, they typically tread on less certain ground when it comes to financial matters. Logistics managers with operations backgrounds and responsibilities typically leave finance to the accountants. But this gap in financial acumen can be a hindrance in the ever-evolving world of supply chain management. Logistics managers with at least a basic understanding of the financial aspects of the supply chain will be better positioned to improve their business operations.
Your exports may not appear to have a military application, but they could still be controlled by the International Traffic in Arms Regulations due to ITAR’s “see-through” rule. Here’s what you need to know
The World Bank has published their Logistics Performance Index for the first time since 2018.
The LPI ranks countries on critical dimensions of trade including customs performance, infrastructure quality, and timeliness of shipments. The data used in the rankings are derived from a survey of logistics professionals answering questions about foreign countries with which they trade. Respondents are asked to identify their line of business (freight forwarder, transport operator, export/import trader, customs broker), typical freight mode utilized, and country in which they are working.
The index benchmarks six areas of performance and gives nations a score of 1-5 for each category. The categories are: 1) Efficiency of customs clearance process; measuring speed, simplicity, and predictability of formalities 2) Quality of trade related infrastructure; focusing on ports, railroads, and information technology 3) Ease of arranging competitive pricing for shipments; ability to compare rates and services on-line 4) Competence and quality of logistics services; in-country customs brokers, transport operators, and freight forwarders 5) Ability to track and trace shipments; transparency and availability of real time information and 6) Timeliness of shipments in reaching destination within scheduled time of arrival; Hardly Ever, Rarely, Sometimes, Often, Nearly Always.
The Global Rankings show the US at 17th (tied with Republic of Korea), down from 14th in 2018.
Let’s break down the US performance in 2023 vs 2018 by category:
LPI Score; 3.8 down from 3.89
Efficiency of Customs; 3.7 down from 3.78
Infrastructure; 3.9 down from 4.05
Ease of Arranging Intl Shipments; 3.4 down from 3.51
Logistics Competence; 3.9 up from 3.87
Tracking and Tracing; 4.2 up from 4.09
Timeliness of shipments: 3.8 down from 4.08
While most of the scores have dropped slightly, the US’ overall ranking has dropped steadily. Here are the LPI average US rankings for previous years.
2023 tied for 17th.
2018 14th
2016 11th
2014 9th
2012 9th
Readers have commented that the size and complexity of the US economy makes comparisons with smaller countries difficult. This is a fair point. However, there is no question that the US has room for improvement in all six LPI dimensions.
Here are the top ten countries by LPI score for 2023:
For the bottom performers, the most important improvements are in customs clearance and infrastructure.
Mid-level logistics performers are showing progress with more countries clustered at an average score of 3 to 4.
Logistics services are showing resilience. Even with Covid induced disruptions overall scores in 2023 are broadly the same as in 2018.
The report identifies four performance groups:
Logistics Friendly- Top performing countries, most of which are high income (25)
Consistent Performers- Countries performing better than most in their income group (25)
Partial Performers- Indicates logistics constraints often seen in low and middle-income countries (46)
Poor Logistics Performers- these are the least developed nations (43)
While comparisons among nations with diverse economies and levels of development will always be difficult, the LPI can be used by individual countries to identify opportunities to improve.
If you are scheduled to sit for the October 25, 2023 CBLE (Customs Broker License Exam) make sure to bring proper identification. Best of luck but I’m sure you are not relying on luck.
Compliance is becoming more important for importers and exporters as CBP and BIS ramp up enforcement activities. Potential clients admit that they have allowed compliance to fall through the cracks or, after some initial steps, moved it to the “back burner”. The reasons for this are usually other priorities, cost, insufficient staffing, or belief that the business is too small.
One of my first questions for the client is “Who is responsible for compliance in the organization?” If they rely on their Customs Broker or LSP (Logistics Service Provider) I advise that these providers are good resources but that the client, as IOR (Importer of Record) or EOR (Exporter of Record), bears ultimate responsibility for compliance.
Sometimes compliance has been assigned to the shipping department or to an administrative staffer. While I can help with best practices and training, this is a poor arrangement. Compliance must be a front end process starting with order entry. Shippers are under pressure to get orders out the door. Administrative staffers have multiple responsibilities and may lack specific knowledge.
In house compliance professionals are often given responsibility without authority. Further, they may be at mid or lower management levels, or in the wrong chain of command. With or without a formal ECP (Export Compliance Program), compliance professionals must have the authority to place holds on questionable exports without being overruled by sales, finance, or supply chain. Well written protocols for resolving issues and releasing holds require C-level or legal approval.
All of the above illustrates the importance of compliance independence. This may mean reporting to the CEO, COO, or legal department in order to remove pressure from other groups.
I don’t remember this requirement when I took the CBLE more than 20 years ago. Here is a reminder for candidates to maintain radio silence about the exam until after midnight. Best of luck
Logistics managers with operations backgrounds and responsibilities typically leave finance to the accountants. This is understandable given the full time need to stay on top of logistics details. However, some basic financial knowledge can help make sure that operations managers are “in the room” when strategic business decisions are made. Consider the 3 logistics tracks of material, information, and financial. These different tracks often result in silos which are counterproductive. It has been said that accountants look back while managers must look forward. Here is some info from the text Global Logistics & Supply Chain Management published by John Wiley and Sons. This is common knowledge for accountants and finance professionals.
Balance Sheet- snapshot of assets and liabilities at a particular point in time.
Income Statement- profit and loss for a defined period of time.
Cash Flow- where the money comes from and where it goes.
Obvious implications for logistics are that time is money, so shortening the supply chain or eliminating delays results in greater profit. High working capital (inventory) reduces profit. Efficient resource utilization (labor, real estate, equipment) increases profit. Cash to cash cycle is key.
Debt financing can be described as gearing. Low gearing means little or no debt. High gearing means the firm has a large proportion of debt to assets. This presents high risk for investors. It also may preclude opportunities to expand or improve operations and debt service (interest) will constrain cash flow.
International logistics involves greater risk which may include uncertain demand, unstable infrastructure and services, political instability, or currency fluctuations. Cost accounting for logistics companies is not as straightforward as for manufacturers. Services are intangible, quality can be difficult to measure, they cannot be stored (perishable), and may involve more that one provider.
More Basics
Order Cycle- Short order cycle leads to reduced inventory; Long order cycle leads to increased inventory.
Cost of Lost Sales- High inventory results in lower lost sales; Lower inventory results in higher lost sales.
Transportation costs- similar tradeoffs as lost sales. Mode shifts from slower to faster (ground to air) can reduce inventory. Shifts from faster to slower (air to ocean) will increase inventory.
Commodity dollar value- High value commodities lead to high inventory, transportation, and packaging costs.
Density- High density commodities lead to reduced transportation and inventory (warehousing) costs.
Loss/Damage- commodities with high susceptibility to loss/damage result in higher costs of transportation and warehousing.
Location decision- Plant or distribution center proximity from materials sources or markets can mean relative advantage or disadvantage vs competitors. These are C- level decisions.
Hey Pete – under 30 licensed customs broker chiming in 👋. The high cost of the training courses are a huge barrier. Luckily my company sponsored me to take the test and paid for all expenses while also providing a raise in pay. That is how you incentivize young people to become LCBs. Alternatively schools like our alma maters should have a full credit elective that ends with you taking the exam. Each maritime academy has a business program full of students eager to separate themselves from traditional business students.
I also challenge the common saying that the brokers exam is harder to pass than the bar.. lawyers study for 3 years to take that test while many people sit for the brokers exam with little prep and less formal education.
Connor Helm Excellent point about the bar exam. I have no doubt that it is difficult even after 3 years of law school. Passing rates are reasonable though. Maybe a better comparison would be other license exams such as CPA.
Been a while since I poked the bear, but I’m fresh from a trip from DC and annoyed. We have a Customs Broker crisis. It’s only getting worse because of demographics. I’d like to challenge U.S. Customs and Border Protection to release some simple age statistics in tiers. What are the breakdown, by age of current license holders in the US? Assuming there are ACTUALLY around 13,000 still kicking around (I question the validity of that number), Then tell us how many are over 70, between 50 and 69, between 35 and 49 and under 34. You have that data since you have our SSNs. I’ll do some Good Will Hunting math with actuary tables and tell you, roughly how many are probably retiring and leaving this earthy plane (I love math and I have no life) Then I’ll make assumptions on the number not actually working on thier license (that number will disgust you). THEN – we look at how many take the test a year, pass it and pass the background check and get the ticket. I’m willing to bet it’s an upside down number. Want to fix it? It’s so easy…Apprenticship programs under the guidance of brokers and a system that requires time working in areas of the industry to learn the trade/Trade – then a test based more on practical knoweldge and less on repetitive questions. Being a Customs Broker is a financially and intellectually rewarding career. Stop making it so ridiculously hard to be one with your poorly conceived test. I’d also like to challenge our professional associations to help us bring more people into our tribe instead of looking for ways to monetize the new mandatory training hours. Unless we do something about this there won’t be anyone to train. Thanks for coming to my TED talk. I’ll be selling merch on your way out….#morebrokers…see more
Excellent post Pete… I am in favor of continuing ed for LCBs. My thoughts on the CBLE: 1) Can anyone name another licensing exam with such low pass rates? I doubt it. Its is easier to pass the bar exam. 2) LCBs take a look at the April 2023 exam and see if you think you could pass it.
International Logistics Consulting; Licensed Customs Brokers
