To my parents, with gratitude
TABLE OF CONTENTS
Introduction
Pag. 3
Dissertation
Pag. 5
•
•
EXPORT Introduction of the Export commodity
Page 5
•
Page 7
Why movement Spain – Hong Kong?
DDP Incoterm: why?
Page 8
Thing that is not allowed to forget
Page 10
It’s time to choose the carrier
Page 11
•
Page 16
And the winner is…
We are freight forwarders, not NGO
Page 23
Let’s ship then!
Page 24
Seem to be easy, but it’s not
Page 27
IMPORT Short introduction
Page 29
What can we import?
Page 31
That’s not what I’ve ordered (L/C)
Page 33
Conclusion
Page 34
Reference and Appendices
Page 37
2
INTRODUCTION
I perfectly know that in this thesis the complexity of the issues and problems faced will be high valuated. By the way, this is not an early confession about the too simplicity of mine, as I believe that each candidate should write about matters that they have experienced during their still short career. “I know one thing: that I know nothing” says Socrates. For the reason explained above, on this thesis you will find many aspects that I’ve learned (sometimes thanks to mistakes) during my 6 years working as International freight forwarder. As you will clearly understand later, I mainly operate on export business, which in the last years is the real engine of economic growth for the European countries. As the FIATA member Association that selected me use to say, “Forwarders are the cargo architects”, and that’s the key to let understand people that doesn’t work in our business how interesting is it. Let me explain it with a short example, where you have to substitute words with the others “tipped on brackets”: Architects (freight forwarders) design all kinds of buildings (shipments). Okay then, but what does the word "design" mean? A design is simply a plan. Before constructing a building (shipments), an architect (freight forwarder) needs to draw a plan of the building (shipment). The building (shipment) is then built (managed) by a construction company (shipping
3
company) which follows the directions of the plans for the building (shipment). The architect (freight forwarder) will closely supervise the construction company (shipping company) to make sure that the building (shipment) is built (scheduled) according to the plans. Architects (freight forwarder) have to think of many things before they draw up the plans for a building (shipment). In this thesis I will try to explain, within the worlds limitation that have been imposed, what are these “many things� that freight forwarder has to think before starting with his shipment plan.
4
DISSERTATION EXPORT
INTRODUCTION OF THE EXPORT COMMODITY About the export commodity, I’ve decided to choose newsprint paper. In this work, the final destination of this cargo will be Hong Kong (later I will specify more about Incoterm used, point of origin, inland destination, etc...). Before starting with this specific case, I need to make a little introduction about the commodity itself: I must underline “newsprint”, as paper has a lot of varieties (more than 500 types)1, as you can see when you just take a look of the Harmonized System Code2. Under code number 48, we can find a lot of different kind of paper. In this case, I will consider HS code 480100, which means “Newsprint, in rolls or sheets”. Nowadays, the paper industry is dominated by North American, following by northern European (Finland, Sweden and North-West Russia) and East Asian
1
Source: ASPAPEL, Spanish Association of Pulp and Paper Manufacturers. More info: http://www.aspapel.es/en/paper/what-it-is 2 The Harmonized Commodity Description and Coding System (HS) of tariff nomenclature is an internationally standardized system of names and numbers for classifying traded products developed and maintained by the World Customs Organization (WCO). HS Code Search Database: http://www.foreign-trade.com/reference/hscode.htm or http://www.hscode.org/
5
countries3. This ranking basically depends on the row material and the extension of the territories that these countries have. The paper industry trend is to expand globally to countries like Russia, Indonesia and China, where obviously there are low wages, no power for the labour union and where the natural environmental seems that is not yet appearing on their dictionaries. The sector has a long background in Spain. Today it is a capital-intensive industry that uses the most up-to-date technologies and in its plants distributed across the entire country: Spain holds the fifth position within the European Union as a producer of pulp and is the sixth largest paper producer4.
3
According to RISI, Inc. (http://www.risiinfo.com), the leading information provider for the global forest products industry. 4 Appendices online: www.fabiogava.com/YIFFYaward2013/1.Paper&Industry.pdf
6
WHY THIS MOVEMENT SPAIN-HONG KONG?
Basic of my personal experience, since few years there is a regular traffic of newsprint paper of about 30 TEUs per month from our customer/producer to this special administrative region of the People's Republic of China. Our export customer is a Swedish company that, due to commercial and cost strategy, in 2.000 acquired a paper mill in Madrid (they have another 2 mills in Sweden). For the Madrid mill, the most demanding markets for selling newsprint paper are Mediterranean, IPBC (India, Pakistan, Bangladesh and Ceylon) and Middle East. So, considering what I wrote until now, why a Hong Kong based company (that, for example, could buy newsprint paper from closer mills in mainland China) should buy newsprint paper that has been produced in the “far” Spain? Well, the question is simpler than it appears, and it’s not only about so called “globalization”5 : apart of quality reasons, both companies (seller and buyer) are Swedish and the first ones have 20% of capital share of the second one.
5
BBC News. “Key fact of the Global Economy”. http://news.bbc.co.uk/2/shared/spl/hi/guides/457000/457022/html/
7
DDP INCOTERM: WHY?
In this case, I will consider an operation based on Incoterm DDP Aberdeen (Delivery Duty Paid): I’ve helped the exporter to choose this “door delivery” Incoterms because, as we have our own office in Hong Kong, we can basically offer better inland haulage rates at destination and have under our control the whole operation.
Image 1: Distance between Madrid and the principal ports in Iberian Peninsula
8
Image 2: Hong Kong port and Aberdeen (final delivery)
9
THING THAT IS NOT ALLOWED TO FORGET
Not linked to the choice of the carrier (for reason of reliability I will always advice to work with the biggest ones) is the decision of the insurance. How can I write a thesis for an award that is sponsored by TT Club, without even mention the insurance? Exporters always should have their commodities covered by their own insurance company. By the way, in some cases they have been required to ship in CIF conditions (this Incoterms means Cost, Insurance and freight) or simply have a further insurance. The fastest and easiest way to get insurance is to be an approved user of TT Club. In this way, and considering this special case in which we are shipping newsprint
paper
reels6,
we
could
generate
our
insurance
certificate
immediately, after an instant online quote. As mentioned on TT Club website, the insurance cover in accordance with the latest version of the Institute Cargo Clauses. Today, there are basically three internationally recognized types of covers available worldwide and all are offered by local insurance companies. They are known as the London market “Institute Cargo Clauses” (A), (B) and (C).
The A is the widest possible cover which protects against ‘all risks’ of loss or damage to the cargo, while the B and C types are more restricted and basically insure against named perils only. The risks covered by both of them are: 6
For example, if I require a quote of Laptop Computers, Cell & Mobile Telephones, Boats, Classic Cars, Bulk Goods or Temperature Controlled Goods, I must contact with my insurance broker or TT Club directly.
10
• Fire or explosion
• Vessel being stranded, grounded, sunk or capsized• Overturning or derailment of land conveyance
• Collision or contact of vessel or conveyance with any external object other than water
• Discharge of cargo at port of distress
• General Average sacrifice
• Jettison
• Salvage Charges
• Liability under the “Both to Blame” Collision Clause.
Apart of this kind of insurance, I always suggest to my customer to be covered with a so called “Export Credit Insurance”, that is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies (in my case, Spain has CESCE7) wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy.
7
CESCE Credit Insurance was born in 1970 and the owner of 51% of capital is the Spanish Government. Rest is owned by banks (Santander and BBVA above others) and insurance companies: http://www.cesce.es/web/sp/
11
IT’S TIME TO CHOOSE THE CARRIER
Just looking at the above map, we can see that the Madrid nearest port is Valencia, that it’s also one of the busiest ports in Europe. Valencia is the transit of the 85% of the import and 60% of the Spanish export by sea; only in 2012, Valencia port reach 4,47 millions TEUs.8 By number of TEUs, in 2011 Valencia was the number 31th in the “Top 50 world container ports”.9
At the time of choose the ocean carrier, the freight amount is just one of all the elements that I must consider. The other, and not less important, are: -
Service and transit time from Valencia to Hong Kong Port (I prefer weekly and direct service in order to avoid transhipments that may delay the scheduled transit time);
-
Availability of requested equipment in Madrid area, where the shipping lines that I will contract should have various “Containers Depots”10 . In my case, equipment must be 40’ High Cube, as the paper reels are 126 cm width and they are packaged one above other. For this reason, 40’ dry container do not suit our shipment.
8
InterTransport, March 4, 2013, 23. “Meeting of Valencia port Board of Directors” World Shipping Council. http://www.worldshipping.org/about-the-industry/global-trade/top-50world-container-ports 10 Container Depots in Spain are better kneed as “Puerto seco”, that means Dry Port. Example: Madrid dry port: http://www.noatum.com/en/noatum-ports/madrid 9
12
11
1. Container Dimensions / Weight
Equipment
40' High cube Container
40' Dry Container
Interior Door Tare Dimensions Opening Weight L:12.056m 39' 6 ½ W:2.340m W:2.347m 7'8 2,900 kg 7' 8 ¼ H:2.585m 6,393 lbs H:2.684m 8' 5 ¾ 8' 5½ L:12.051m 39' 6 ½" W:2.286m W:2.340m 7' 6" 3,084 kg 7' 8" H:2.278m 6,799 lbs. H:2.380m 7' 5 ½" 7' 9½"
Cubc Capacity
Payload
76.0 cbm. 2,684 cu. ft.
29,600 kg 62,256 lbs.
67.3 cbm. 2,377 cu. ft.
27,397 kg 60,401 lbs.
My customer obviously prefer to stuff the container directly at their mill, not only for economical reason, but also to avoid third party manipulation of their commodity (paper reels required specifically machineries to stuff them into containers without any pallets). At the time of quote all shipments of projects, I always suggest to under mark the sentence “subject to availability of space and equipment”, as well as the word V.A.T.O.S, that means that all stated Additional Costs & Charges are “Valid at Time of Shipment”.
-
Inland haulage cost and possibility to combine truck-train: That’s not only because my customer is “environmentally friendly”, but also because in this way we can cut cost on about 30% respect truck transport only. The calculation of energy consumption and emission data of a worldwide transport chain can be done rather quickly with the help of EcoTransIT
11
Freightrate.com. “Container dimensions / Weight”. http://www.freightgate.com/resources/container.tet
13
World12. In my case, just see the CO2 equivalents, which show clearly the positive influence for the climate changes of train transport respect of truck transport.
More factors, like Primary Energy Consumption, Carbon dioxide, Nitrogen
Oxides,
Nonmethane
Hydrocarbon,
Sulfur
dioxide
and
Particular matter (combustion related) have been also analyzed and show a positive influence as well for the train transport compared with truck transport. By the way, my personal point of view is that Customers are not interested in how much CO2 is emitted by the shipowners' ships. Yes, of course exporter producers could take a look and compare the different environmental impacts of the “trip� of their commodity, but the principal reason of selecting one or another carrier (and also one or another way of inland transportation) is and will be in the next future the money requested for that. Additionally, it is still not possible to compare the 12
http://www.ecotransit.org/index.en.html - EcoTransIT World calculates environmental impacts of different carriers across the world: this is possible due to an intelligent input methodology, large amounts of GIS-data and an elaborate basis of computation. Data and methodology are scientifically funded and transparent for all users. You can find the full results of our case on the Appendices and also here: http://www.fabiogava.com/YIFFYaward2013/2.truckVStrain-MAD-VLC.pdf
14
CO2 emissions of the major container carriers, says new analysis by SeaIntel.13
-
Reliability of the shipping line: it is a crucial parameter for me-the forwarder, for my customer but also for the shipping line itself and for all the supply chain. Customers expect their containers to reach the destination on time and unharmed14.
13
BBC News, William Kremer. How much bigger can container ships http://www.bbc.co.uk/news/magazine-21432226 14 Drewry Maritime Research. “Carrier Performance Insight�. http://www.drewry.co.uk/publications/view_publication.php?id=313 According to Drewry British analysts, Hanjin surpassed Maersk Line last quarter of 2012.
15
get?
AND “THE WINNER” IS…
Considering all above, I will choose Maersk Line as carrier for this shipment and ask them to register the freight rate that they previously sent to me.
Receipt
Delivery
Charge
Locations
Basis
Cur
D40HD
Hong Kong, Madrid, ES
HK
BAS
Container
USD
900
IHE*
Container
EUR
450
DDF
A
BoL
HKD
350
ODF
B
BoL
EUR
45
SER
A
Container
USD
12
PAE*
Valencia
Container
EUR
50
PSE*
Valencia
Container
EUR
5
2. Example of Maersk offer Madrid-Hong Kong – Full details are available on Appendices
This rate, valid for 2 months (generally it’s hard to get an offer for more with validity of more that this period) are composed of:15 -
Basic Ocean Freight In this offer, the USD 900 x 40’ HC container showed include also: 1. CAF: Currency Adjustment Factor 2. DHC: Handling Charge Destination
15
Full excel file with Maersk offer can be found on Appendices and here: www.fabiogava.com/YIFFYaward2013/example-freight-Vlc-HK.xlsx
16
3. ERS: Emergency Risk Surcharge 4. FFC: Forwarder Commission - Origin 5. OHC: Terminal Handling Service - Origin 6. SBF: Standard BAF (Bunker Adjustment Surcharge) 7. STT: Suez Transit Fee 8. ULF: Agency/Logistics Fee
I’ve decided to choose the Danish shipping line because they better respond to all the elements that I’ve commented in the previous pages. I must underline two reasons above all: -
Weekly and direct service from Valencia, with a transit time of about 39 days. You could think that almost one month and a half to arrive to Hong Kong from Mediterranean is quite long time. There are part of true in this affirmation, because after the great world recession started in 2009, vessel slow down their speed, in a so called “slow steaming”, that is nothing else that the simpler way to reduce costs. But there are also two more reasons that justify and explain slow steaming and even “extra slow steaming”: the delivery of new incredibly enormous vessel of more than 14.000 TEUs/400 meter long16 that
16
Maersk Line have called these next generation vessel “Triple-E”, that means: Efficiency, Economy of scale, Environment. More info on http://www.worldslargestship.com On Twitter and Maersk Line's Facebook page the first picture of the Triple-E being built at the Daewoo Shipbuilding & Marine Engineering ship yard in South Korea has been published. The ship will be approximately 400 meters long, 59 meters wide and have an overall capacity of 18,000 teu. If all these containers were placed on a train, the train would stretch for 110 kilometres. According to Maersk Line, the Triple-E will become the most fuel efficient container ship ever built.
17
consequently create more offer than demand and the increment of bunker cost.
18
-
Generally, Maersk Line do not have any problem with stock of 40’ high cube containers in Madrid Area17.
-
I think Maersk Line is truly commitment with the environment and I just wrote that because of various facts (these are just just three examples that I believe are the most significant ones): 1. Maersk Line has reached its 2020 target of reducing CO2 emissions by 25% from its benchmark 2007 levels18; 2. Maersk Line wants Hong Kong to ban dirty fuel to fight smog: the company and 17 other other operators have voluntarily used lowsulphur oil for the past two years to help curb Hong Kong’s pollution,, the worst among global financial centres. centres By the way,
17
We must be careful with the “seasonal business”, like the export of alfalfa hay to Middle East Region, that use huge quantities antities of 40’ containers (both dry van and high cube). 18 Maersk Line. “Maersk Line reaches 2020 CO2 target”. http://www.maerskline.com/link/?page=news&path=/news/news20130125
19
Government incentives for switching to cleaner fuels for shipping lines calling on the world’s third-busiest container port, a key contributor to the island’s pollution, don’t cover additional costs and the payments are often delayed because of processes. For this reason, Maersk Line threatened to stop using cleaner fuel at Hong Kong port from next year if the government doesn’t mandate higher quality oil for carriers berthing in the city.19 3. Last February 3rd 2013, through his CEO Peter K. Nymand, Maersk Container Industry declare that “We urge the European Commission to ensure enforcement of existing EU legislation regarding insulation foam in reefer containers. This would benefit the environment, and it would help European innovation and environmental investments pay off.”
Mr. Nymand was talking about the reefer container, but this “way of thinking” must be applied also to standard container transportation.
Current EU legislation bans the "import" or "placing on the market" of reefer containers with significant potential to damage the climate and ozone layer. But thousands of such containers nevertheless circulate in Europe's internal market on virtually the same market conditions as more environmentally friendly reefers.
19
Bloomberg. “Maersk Wants Hong Kong to Ban Dirty Fuel to Fight Smog”. http://www.bloomberg.com/news/2013-01-06/maersk-wants-hong-kong-to-ban-dirty-fuel-to-fightsmog.html
20
Supotec, which was developed and patented by Maersk Container Industry in 2002, does not damage the Earth's ozone layer, nor does it cause significant climate change. As a result, customers and the World Wildlife Fund WWF laud Supotec for being an environmental step forward "This is environmental precaution. It is positive when enterprises, in this case Maersk Container Industry, move ahead of the legislation by developing products and production methods, which in turn make it possible for legislators to demand more from the rest of the industry," says John Nordbo, head of the Conservation Department at WWF, Denmark.20
4. Maersk Line act in the Ulysses project21 Advisory Committee: the objective is “to demonstrate, through a combination of ultra slow speeds and complementary technologies, that the efficiency of the world fleet can be increased to a point where the targets of reducing greenhouse gas emissions by 30% compared to 1990 levels and by 80% compared to 1990 levels are met”
-
About reliability, according to British analysts Drewry22, Maersk Line has handed over the number one spot to its Korean competitor, Hanjin, in the
20
th
Maersk Line. Press Releases, 04 February 2013. “Maersk Urges EU Climate and Ozone Action: http://www.maerskpress.com/LATEST-PRESS-RELEASES/maersk-urges-eu-climateand-ozone-action/s/810caf9c-0d94-4537-bb23-76f94e5bfbd6 21 For more info, see Ulysses Project official webpage: http://www.ultraslowships.com/ 22 Drewry is the specialist research and advisory organization for the maritime sector. The publications “Carrier Performance Insight” can be found here http://www.drewry.co.uk/publications/
21
second quarter of 2012. Always according to Drewry, ”containership reliability reached a record high in the fourth quarter of 2012, with the percentage of on-time ship arrivals across all trades jumping 79.9 percent, a rise of 6.4 percentage points compared with the third quarter’s performance” 23.
23
Shippingwatch. “Competitors go after Maersk where it hurts”. http://shippingwatch.dk/English_Version/article5196893.ece
22
WE ARE FREIGHT FORWARDERS, NOT NGO
Now, as I’m a young freight forwarder (and hopefully one of the finalists of Young International Freight Forwarder of the Year Award) and not a NonGovernmental Organization, I will increase a bit the above rate. The best thing is always to increase the rate of ocean freight. Other concepts (like BAF, CAF, THC, ISPS, etc...) should not be increased or just softly increased, as should be similar in all offers that an exporter could receive from other freight forwarders or logistics operators. Even if customer has told you that they are not asking the same destination to other competitors, be sure that they will do it. At this point, the offer has been made and customer should have accepted it (all right, you can call me optimistic). The day of the stuffing at mill, I will encourage the exporter to take pictures of any equipment (while empty, while stuffing and once container is full of commodity) that arrive at mill: it will avoid any claims that could come later. A survey by the Hong Kong Shippers’ Council (HKSC), exclusively revealed to IFW, found that the size and frequency of fees charged for box damage had been increasing, and shippers were being charged for damage they were not liable for. One Hong Kong-based shipper reported: “Shipping lines are asking for cleaning or chemical wash fees for almost all empty containers returned to
23
their depots, even though our cargo is clean, packed in paper cartons and moved only by hand at our own warehouse.”24 In this case, prove with pictures that at the time of loading the equipment were in good conditions may help. By the way, this will not exclude at all that importers will be asked to pay for container damage. Shippers claim lines and depots are making them pay for container damage, even when they are able to prove non-liability with an equipment interchange report (EIR - document executed by a truck carrier and a terminal transferring possession of a container from one to the other, and showing equipment condition at time of transfer). “Even though damage is clearly marked on the EIR upon gate-out at the terminal, some shipping lines insist on collection of repair costs on return of the empty at its depot,” said one shipper. “Otherwise, acceptance will be denied, or the tractor will have to wait for hours, causing delay and extra costs. This is simply blackmail”.25
24
Maritime Sun. “Shipping lines accused of stealth charges for “container damage””. http://www.maritimesun.com/news/220 25 About this matter, Mr. Balakrishnan Muthukaruppan (Director at PKT Logistics Group in Selangor, Malaysia), has opened an interesting debate on LinkedIn, a social networking website for people in professional occupations that you surely know. Link: http://goo.gl/HGV9f
24
LET’S SHIP THEN!
The paper reels has been stuffed at mill and the cargo is now on his way to Valencia port, where will be loaded in the first available vessel to Hong Kong port. About documentation, for this shipment we will use a so called “House Seawaybill” (HSWB) because two mainly reason: 1) The consignee of the goods on the HSWB is our agent in Hong Kong, that will take care of the goods and delivery the cargo until the “door” of the buyer; 2) A sea way bill performs is non negotiable (the ownership of the goods cannot be transferred by endorsing the sea way bill and cannot be issued “to the order”). The cargo consigned under it can only be released to the named consignee on the Seawaybill. As such, the original document is not required and the receiver only needs to identify themselves correctly. 3) SWB is more relevant for non commercial transactions, inter company stock transfers or where the bank L/Cs are not involved. 4) The receiver of newsprint paper reels have already paid them;
I’m not going to explain what is the standard bill of lading, but just let me say that, as my boss used to say “If you read all the conditions that appears on
25
page one of any BL – because the first one is the page with all terms & conditions – you will never ship anything!” In some countries (like, for example, Spain), any freight forwarder can act as NVOCC (Non Vessel Operating Common Carrier) and issue House Bill of Lading for their ocean shipments. It’s interesting to know that in other countries (e.g. the USA), only companies registered specifically as NVOCC are licensed to issue HBL. So, as soon as the containers have been sailed and the shipping line confirms us that they are “on board”, we can release the HSWB: it will be an exact replica of the Master Bill of Lading (issued by the Shipping line – Maersk in my case) in respect of cargo details. The only difference will be that the shipper, consignee and notify party details will be different in the HSBL and MBL. On the appendices26 you can see an example of both Master Seawaybill and House Seawaybill. The Master Seawaybill shows our agent as consignee: in fact, as soon as the vessel arrives at Hong Kong port and the container/s will be discharged, he will identify himself as consignee even without the seawaybill (remember that seawaybill has no original) and, at this point, he could gate the cargo out of the port for final delivery, that in our case will be done by truck. Give the final inland transportation to our agent in Hong Kong assure that we’ve got better price than the prices that shipping line would have gave us for the same inland service.
26
Appendices is available online, here: MBL: www.fabiogava.com/YIFFYaward2013/mbl.pdf HWBL: www.fabiogava.com/YIFFYaward2013/H-SEAWAYBILL-1169.pdf
26
So, at this point cargo has been released and if there isn’t any problem with container damage (as mentioned above), in a few days paper reels will be used to print the most famous newsprint in Hong Kong.
27
SEEMS TO BE EASY, BUT IT’S NOT!
If you are reading my thesis and you have the feeling that the work of freight forwarder is too easy, of course you’re having a wrong impression. Our job is full of variables, that most of the times are unpredictable: bad weather, political crisis, wars, pirates, trade interdictions, etc… A great way to discover almost all of them was the BBC News project called “The Box”27: in 2008, the world famous British TV channel followed a 40’ shipping container for a year to tell stories of globalization and the world economy. “The BBC Box project was intended to tell the story of the global economy and international trade over the course of a year, and as global trade reached near standstill at the height of the turmoil, “The Box” followed it.
From April until July 2009 it sat forlornly in the Japanese port of Yokohama.
It was just one tiny illustration of the statistic that the container business made a collective profit of £3bn in 2008, but is estimated to have lost a cool £20bn in 2009.
Way back, in what seems like a different economic world, our container delivered its first cargo of Scotch whisky from Greenock to Shanghai, in China.
27
BBC News. “The box”: http://news.bbc.co.uk/2/hi/in_depth/business/2008/the_box/default.stm
28
BBC News showed the growing strength of China's consumer class whose buying habits seem only to have been momentarily slowed by the global recession.
But even that blip badly hurt in Brazil as we found out when the Box arrived at the busy port of Santos earlier this year.
For them the dip in China's iron imports was painful - a dip made worse by falling demand across the world for goods made in China.
From Singapore to New York, Los Angeles and Bangkok we learned vividly just how inter-dependent countries have become, and what globalization really means close up.
Along the way, literally, we were able to cover developments in international piracy28, including its impact on insurance and the profitability of the Suez Canal through which the Box passed early in its journey”. 29
28
BBC News. Christian Fraser, BBC Middle East correspondent. “Suez: the supertanker super highway. http://news.bbc.co.uk/2/hi/business/7666877.stm 29 BBC News. Jeremy Hillman, Editor, BBC business and economics unit. “Lesson learned as the Box returns” http://news.bbc.co.uk/2/hi/business/8314116.stm
29
IMPORT
SHORT INTRODUCTION
Maybe I’ve analyzed too much30 the above export operation but I think that I’ve used the same trend that are manifesting right now in my countries (Italy were I was born and Spain that is where I live now). Let me explain: exports are growing even with recession, and that is also “thanks to” the deceleration of domestic demand. Seems that Italians and Spanish producers understand that to survive they need to have larger ambitions, of course not limited to their boundaries. In my thesis I would like to make a correspondence with the reality of my countries: give more prominence (means words) to the export than the import.
For the import operation I will do not enter in the same problems and decisions that I’ve focused for the export operation above. That means that I will do not repeat again any matters like: -
the reason of buying/selling commodity at the other side of the world (well-known like “globalization”);
-
the choice of carrier, their service/transit time, availability of requested equipment/space, their reliability;
30
“Too much” in reference of the limitation of 6000 words to be used in the whole thesis
30
-
the opportunity of multi-modal transportation;
-
the freight costs with;
-
the way to make the offer;
-
the documentation (Bill of lading).
With this import operation I would like to explain and analyze something that I’ve never mentioned till now: the way of payment international transaction of goods. In this case, I will consider the most used and the most viewed for me since I’ve started to work as international freight forwarder: the letter of credit.
31
WHAT WE CAN IMPORT?
I really love seafood: I remember when I was in Karachi, Pakistan, sitting in the terrace of Hook Line & Sinker seafood restaurant, where I tried the best lobster of my life. I was there with my girlfriend: she really likes to soak up the sun and I remember that she was spread on her a sun tan lotion that she previously bought in Shanghai, China (yes, that was an amazing trip of almost two months). When we were back in Europe, we commented to our friends how amazing was the whole trip and, like every group of friends, men finished talking about food and girls finished talking about beauty. They want to try Pakistan’s seafood and this Chinese sun tan lotion, so they were searching for Importers in Europe of those products. The results of their searching were that they must go to out of any countries of European Union to try Pakistani seafood and the Chinese sun tan lotion. -
Pakistani fish products are subject to a ban in European Union since 2007. The voluntary ban imposed by the fisheries department was the result of the EU Food and Veterinary Office identifying serious deficiencies in the official control system for seafood, like traceability and also hygiene at various stages of the industrial process.31
31
th
Update: at the time of redacting this thesis (28 February, 2013), The European Union has decided to resume imports of Pakistani seafood to its markets. The decision puts an end to a six year long voluntary ban of exports of seafood products to the EU by the Marine Fisheries Department of Pakistan. The Express Tribune: http://tribune.com.pk/story/513679/six-yearhiatus-pakistani-seafood-set-to-enter-eu-markets-again/
32
-
Since just more than one month (11th March, 2013) The European Union regulators announced a ban on the import and sale of cosmetics containing ingredients tested on animals and to pledge more efforts to push other parts of the world, like China, to accept alternatives.32
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th
New York Times. James Kanter, Published March 11 , 2013. “E.U. Bans Cosmetics With Animal-Tested Ingredients�. http://www.nytimes.com/2013/03/11/business/global/eu-to-bancosmetics-with-animal-tested-ingredients.html?_r=0
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THAT’S NOT WHAT I’VE ORDERED (L/C)
Everyone that are reading this thesis know perfectly how letter of credit works, so now I’m explaining only the case when the commodity received is different from the one bought. Yes, it happens, and more that what we could imagine. The buyer pays the total amount of money (agreed with the seller) to his bank, and consequently the bank gives the documents to the buyer. Now, and only with these docs, the buyer is able to pick up the commodity from the port (of course after giving to the shipping company the original bill of lading). At this point the buyer will do the customs clearance and formalities (with presentation of commercial invoice and other documents required by Customs Authorities). Once stocked the commodity, the buyer opens the container and checks if quality, quantity and other details are exactly the same of his order. If not, the buyer wants that his bank do not pay the bank of seller. The problem is that the bank of buyer must pay the total amount to the other bank (excepting if the existence of regulated reserves made on time). In this case (unless it’s only a mistake of the seller and he solve it friendly), the buyer has no defense against the trick of the seller. The only way is to move rapidly, that’s means before that his bank send the total amount of money to the bank of seller.
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This possibility consists to take legal action and ask to the judge that the bank of buyer do not transfer any money to the other bank. Only in this way, the bank of buyer does not accept responsibility before the bank of buyer. With the money holds, the buyer could take legal action before the same judge and against the seller. If the judge will prove that the commodity shipped was different from the agree/contract, the seller finally could have his money back.
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CONCLUSION
After all the exposed and always in my opinion, standardization is and will be the “key word�: we have to try to keep working on this concept, like Malcom McLean did in 1955, when he worked with engineer Keith Tantlinger to develop the modern intermodal container. The challenge was to design a shipping container that could efficiently be loaded onto ships and held securely on long sea voyages: the result was a 8 feet tall by 8 ft wide box in 10 ft-long units constructed from 2.5 mm thick corrugated steel. The design incorporated a twistlock mechanism atop each of the four corners, allowing the container to be easily secured and lifted using cranes: this began international standardization of shipping containers33. I firmly believe the shipping industry in general is years behind in terms of use of technology to streamline communication, reduce costs, improve timings, add visibility, etc. While paper airline tickets have virtually disappeared in most of the world, we still see paper bills of lading in most of the shipments. It’s not only the shipping industry though, customs procedures are particularly prone to paper and slow processes. Therefore, the trends that I would like to see in containerized e-commerce all relate to making the whole process easier, faster and cheaper. Some ideas could be: standardized quotes from carriers in computer-readable formats, as well
as
standardized,
computer-readable,
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comprehensive
and
reliable
McGough, Roger (Narrator), McAulay, Graeme (Director & Producer), Crossley-Holland, Dominic (Executive Producer) (2010). The Box that Changed Britain (documentary). BBC.
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schedules. Really important should be also a better integration with IT solutions by carriers (for example with an improvement of INTTRA system34), without forget electronic invoicing and better tracking, as some areas or carriers don’t provide accurate information.
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INTTRA is the world’s largest, multi-carrier network for the ocean shipping industry. In their website (www.inttra.com) we could read that “Our solution enables customers to efficiently and easily plan, book, manage, settle and analyze ocean freight shipments with the 40 leading carriers and NVOCCs. We’ve made it our mission to streamline and standardize ocean shipping processes and to provide unmatched analysis capabilities across the network to support better business decisions, improve customer experience and drive growth”.
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REFERENCE AND APPENDICES
For my dissertation I’ve used Chicago Referencing System.
All documents of appendices can be found online under the domain www.fabiogava.com/YIFFYaward2013/ as linked at the bottom of each page that contains documents.
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