Assignment

Master of Bussiness Administration-MBA Semester 4 SC0006-Global logistics and supply chain Management
Q1.

Ans...Flow chart of shipping chart......

the goods that are manufactured in a facility are transported to a warehouse near to the seaport. Before the cargo is loaded onto a ship, it has to undergo a customs check. A team of government officers checks the cargo and documentation of the cargo to be shipped and gives an approval for shipping the cargo. This is mandatory in international transportation. Then the cargo is boarded onto a ship and transported. At the customers port, the cargo undergoes a customs check as soon as it reaches the port. After the customs officer clears the cargo, it is transported to customers warehouse. Port management throughout the world is recognising that labour effectiveness and efficiency is critical to maintaining, and increasing, port traffic in todays global economy. This has led many ports to attempt to institute labour reforms. Such labour reforms have generally led to a reduction in dockworkers along with higher productivity expectations. Not surprisingly, port labour reforms have met with strong resistance from the dockworkers. Another important issue associated with todays seaports are free-trade zones and are defined as part of an economy, geographical or functional, in which the rules and other institutions for the production and distribution of goods and services differ from those in the rest of the economy1. They are in existence for more than hundred years but their popularity has increased in the recent years with an increase of free-trade zones from 80 to 600 over few decades. Free-trade zones normally attract foreign investors, generate jobs and encourage economic growth. They are normally located closer to seaports but they are also located near to airports. The reason for the increase in number of trade zones is mainly globalisation and reduced price of goods. The benefits of trade zones vary from

country to country due to the different types of trade zones and difference in rules and regulations. One common thing about trade zone is goods can enter duty free and remain duty free unless and until they enter the customs territory of their country2. Issues:Load centres are major points in ports where large number of containers arrive and depart on weekly basis. They work in the same manner as airport hubs where large amount of traffic moves through limited facilities. Load centres provide efficiency to handle more number of containers at a time. The equipments to handle containers require huge investment. The growth of load centres may also require port expansion and dredging of existing harbours. Unfortunately, these two create environmental issues. Environmental considerations with port dredging tend to focus on disposal of the channel sediment because of the possible presence of toxins, heavy metals, and cancer-causing chemicals. Also, expansion of port can cause vehicle congestion and in turn air pollution. There are many strategic responses concerning load centres by ports. As vessel size increases to exceed 10,000 TEUs in a single shipment, mega load centres are necessary to receive and store the cargo. With such large vessels we can think of a handful of mega ports with sufficient draft to be the port of call. The port is a complex transportation and logistics core. Today, the rate of international trade and traders has increased considerably. And many ports are not able to function properly due to the scarcity of space to accommodate goods. Solution to this problem adopted by logistics service providers is the search for free spaces and converting them into terminals. These terminals are called dry ports. It is an internal land transportation terminal connected by road to the seaports and the goods are shipped to or from there. They also serve as customs terminals as they allow customs clearance and temporary storage of goods within the logistics sector and easily. Q.2 Ans.... Documentation is an important part of global supply chain. While there are documents used for a shipment within a country, there are other documents used in shipping goods between countries. In today's complex global business environment, transportation documentation plays a very crucial role. Goods that are shipped from one country to another have to be accompanied with a set of documents. These documents carry important information such as the permission for transportation (customs clearance, insurance details, pollution clearance certificate, etc) and detailed information of the goods being transported (buyer, seller, third party logistics, environment certificate, payment details, etc.). Many documents accompany the goods while transporting goods between two countries. depicts some of the important documents that are used in international logistics.

Documents Used in Shipping Goods across Countries

Let us now discuss each of these shipping documents. Air waybill (AWB) An air waybill is a non-negotiable transport document covering transport of cargo by air from airport to airport. The logistics company, freight forwarder or the air carrier issues the bill. Sometimes the exporter, seller or third party logistics may fill the bill and get it signed by an agent of the carrier airline. The bill mainly contains the name of the carrier and an indication that the goods have been accepted for carriage. It also indicates the actual dates (loading date, dispatch date, date of shipment, etc). The airport of departure and destination are mentioned in the bill. The terms and conditions of carriage are also attached to the bill. AWBs comprise 11 digit numbers which assist in making bookings, verifying the status of delivery and current position of the shipment An AWB serves as contract of carriage, evidence of receipt of goods, freight bill, certificate of insurance and customs declaration. The AWBs specify the: carrier's name carriers head office address and logo pre printed eleven digit air waybill number Documents such as invoice, packing lists, etc are attached to the air waybill copy of the consignee. The documents usually travel with the cargo. This way, documents will reach at the same time as the cargo. Bill of Lading A Bill of Lading is provided by the carrier (water transport) to the shipper as acceptance of the receipt of goods. This serves as a contract between the goods owner and the carrier who delivers the goods. This also acts as a title for the goods. Thus, an Original B/L issued is usually a set of three. The person who presents one of these Original, Negotiable B/L will take possession of the goods. A B/L can be either negotiable or non-negotiable. A written acknowledgement called Mate's receipt is issued by an officer of a vessel stating that something of value has been received. It is issued as an interim receipt until a proper bill of lading can be issued. The Bill of Lading is deemed 'clean' only if the cargo is apparently in good condition without any damage to goods and properly packed when it reaches the ship owner or agent. If there is any damage, then it becomes a claused B/L stating the details about the damage. The importer always prefers a clean B/L especially if L/C is involved. Although many shipments generally use negotiable bills of lading, some countries do not allow them or make it complicated for them to be used. The owners of the goods must have knowledge of whether a negotiable Bill of Lading is accepted in their country. Otherwise, the shipper may issue a non-negotiable Bill of Lading. Proforma invoice A proforma invoice is an invoice that is sent to the buyer before the shipment takes place. It gives the buyer an opportunity to review the sale terms (quantity of goods, specifications and value) and get an import license (if necessary) in his/her country. It also allows the buyer to work with his/her bank in order to arrange any financial related process for payment. For example, to open a Documentary Credit or Letter of Credit, the proforma invoice is used by the buyers bank as a source of information. The seller/exporter must not send a proforma invoice to their customer till they understand what they are offering to the buyer. the buyer reviews the proorma invoice and if there is no change required, the exporter can modify its title and date and use it as a commercial invoice. Commercial invoice Commercial invoice is a document of transaction for the cargo from the exporter to the importer. These invoices are often required by customs to find out the actual value of goods for assessment of customs duties. A commercial invoice should clearly specify the date and terms of sale, quantity, volume of the

shipment, type of packaging, clear specification of cargo, unit value and total value and insurance, shipping and other charges. It is better to prepare a commercial invoice for international shipments as the rules vary from country to country. A commercial invoice is also used to ensure that the shipment will be delivered directly to the importer's address. In case, a shipment does not have the required commercial invoice, the customs department of that country can cease the shipment. During such situations, the shipper's agent will notify the importer about the situation. Later the importer must arrange for customs clearance by clearing the customs taxes and delivery charges. An exporter can even let the importer know the transportation details so that the importer can be at the place when the shipment arrives to clear and pick up the cargo. Insurance certificate Insurance certificate is a document issued by an insurance company. It certifies that an insurance policy has been bought and shows an abstract of the most important provisions of the insurance contract. Usually, a specific policy covers a particular shipment or one shipment only. However, an open policy is issued once by the insurer under the contract to cover many shipments made by the exporter to different importers over a period of time (usually one year). Therefore, the exporter holding an open policy cannot send that sole policy to all the importers. Instead, he will issue an insurance certificate to each shipment and that insurance certificate will bear the open policy number. An insurance certificate can also serve as an evidence of the existence of the marine insurance policy. The marine insurance policy is a contract where the insurer indemnifies the insured by agreeing to the marine losses. Insurance certificates will be signed by underwriters and the original certificate should be a part of the set of documents that are presented to a bank for any transaction and this is covered by a letter of credit. If its not required for banking purposes, then administrative work can be minimised by replacing the certificates with simple notice of insurance. In this, the agent to be contacted at the destination point must be added. Every export shipment should have insurance coverage using the 'International Commercial Terms' (INCOTERMs to cover the risks involved in shipping of goods. There can be loss or damage caused to the shipment during the voyage. An insurance policy can help the exporter to claim money in case if there is any damage or loss happens to the shipment during the voyage. A qualified insurance agent can provide coverage as required by the shipper. Most freight forwarders provide blanket policy for exporters. Inspection certificate Inspection certificate is a certificate issued by an independent agent or firm attesting to the quality and/or quantity of the merchandise being shipped. Such a certificate is usually required in a letter of credit for commodity shipments. Many foreign countries require inspection certificate document as an evidence for quality and conformity of the goods being shipped by the shipper. An inspection certificate ensures that a shipper is shipping in fact the goods ordered by the customer. It also ensures that the shipped goods are of good quality. If a customer requests the inspection certificate, a shipper should be ready to produce the certificate, but the shipper should check whether the customer covers the administrative and inspection charges. Also, the shipper can ask the customers to recommend an independent inspection agency to perform the review at shippers end. This certificate, typically in the form of an affidavit from either the shipper or an independent inspection agency, certifies the quality, quantity and conformity of the goods to the purchase order. Letter of credit A Letter of Credit is a document that is issued by a bank committing to pay the seller/exporter an amount of money that is stated. This L/C is issued on behalf of the buyer/importer, stating that as long as the specific terms and conditions of the L/C are met, payment will be made. Of all shipping documents, the most expensive and time consuming part is making changes to the L/C. It is generally a mechanism, in which importers can offer secure terms of payment to exporters. A letter of credit ensures payment of a specified amount in a specified currency, provided the exporter meets preciselydefined conditions and submits the prescribed documents within a fixed time-limit. This provides

formal trade mechanisms which are used usually where the exporter is unwilling to extend credit to the importer. It provides assurance to both the parties, the exporter and the importer, regarding the delivery of goods and timely payment. Packing list Packing list contains list of materials that are being dispatched. It is also called as bill of parcels. This list shows the number of goods present in each shipping package, along with individual weights and dimensions. The receiver uses this list to check that the correct number of packages have been received. Customs authorities can also easily verify a particular package if they desire to inspect . Q3 Ans...... The Charter Arrangement Chartering vessels is important to transport cargoes globally. Major manufacturing or supplier companies may have their own vessels to transport their cargoes. Otherwise, they need to charter vessels for a particular period. Charter is a contract made between the ship owner and the shipper (charterer) for the use of an entire vessel or part of the vessel over a period of time. Chartering is made mainly for the purpose of carrying cargoes. Most of the chartering arrangements are made with the help of brokers. There will be brokers representing both the vessel owners and charterers. Usually, charterers contact several brokers and thus charter vessels depending on their needs and requirements. Sometimes, a third broker is also involved to facilitate the dealings between the charters broker and owners broker. You are a shipper and you are in need of a vessel for transporting some cargo. Whom do you approach for getting a carrier? You can approach a broker and provide him the details of the specification of the carrier that you are looking for. The broker then checks the availability of the carrier that you had requested by circulating the information to other brokers and ship owners. The broker of the ship owner who owns such a carrier will approach your broker with a specific rate. The offer has an expiry date for example, 24 hours, within which your broker has to make the deal after consulting you. Your broker and ship owners broker usually bargain the rates among themselves or by consulting you and ship owner respectively to fix a right rate. At the same time, the brokers will be in touch with the other competitors looking for a good deal. This helps both the brokers to have a deal in hand and also look for another deal better than the current one, within the expiry date of the current offer. Usually, charterer pays the ship-owner on the basis of: days of usage of the vessel quantity of the goods carried lump sum for the entire voyage There are mainly three types of charter arrangements made in shipping. They are: Bareboat Charter Voyage or Spot Charter Let us discuss these charter arrangements in brief. Bareboat charter Under bareboat charter, the control and ownership of the ship ultimately lies with the charterer for an agreed period (which could be several years or even the total life of the vessel) of time. Ship owners do not hold any responsibility to manage the equipment or crew of the ship during the specified period of the contract. In addition, ship owner is not responsible for the goods transported using their vessels. Hence, the charterer needs to take whole responsibility for managing, equipping, and maintaining the ship for a particular period of time. The charterers need to bear all the operating and voyage expenses themselves and they have the ultimate control over the vessel for a fixed period of time. A bareboat charter agreement usually contains the details of the name and address of the charterer, name of the vessel, contract period, charter fees, name and contact details of the crew members, etc. A bareboat charter is more like a leasing arrangement made between the charterer and the ship

owner. Under bare boat charter, charterer of the vessel even gets the chance to purchase the vessel. This type of charter arrangement was widely used during first and second world wars, when the government took over the control of the privately owned ships. Bareboat charter is also known as demise or net charter. Time charter Under time charter, ship owner rents the vessel to the second party for a specific period of time. In time charter arrangement, ship-owner has the responsibility to control and manage the ship. Here, the ship-owner pays the expenses of officers, crew, insurance, food, etc. Whereas, the charterer needs to spend the expenses related to fuel and cargo. Time charter agreement usually contains the details like: name of the ship owner tonnage and capacity of the ship speed and fuel consumption of the ship trading area of the ship agreed service contractual period time of delivery place of delivery payment strategies Under time charter, ship owner would not take the responsibility to transport goods to respective destinations. The responsibility to transport goods solely lies on the charterer. Voyage charter Under voyage charter, charterer borrows the ship from the ship owner for one or more specific voyages. Here, the ship owner holds the overall control of the ship. Ship owners are responsible for equipping and manning the vessels. In addition, the ship owner takes the responsibility of transporting the cargoes to the ports mentioned by the charterer. Thus, the ship-owner holds the navigational and commercial control of the ship. Voyage charter agreement usually contains the details like: name and address of ship owner name and address of charterer name and nationality of the ship tonnage and capacity of the ship type of cargo amount of cargo time of delivery data of the trips agreed upon Let us discuss these important clauses in brief. o Bunker clause - Bunker clause states that the charterer has to pay for the fuel required for the voyage at the port of delivery. o Ship clause - In ship clause, the ship owner gives a surety to the charterer that the ship is sea

worthy. It also states that the ship is appropriate to travel to the port for which it is chartered. o Ice clause - Ice clause states that the vessel is not supposed to force ice, i.e., navigate through ice caped sea surface, but subject to owners' approval. The charterer must take prior permission from the ship owner to anchor in a port near to ice. The wording of the clause and the options vary depending on the individual contract. For instance, in some cases, captain of the ship may have the right to divert the ship to the nearest safe port to unload the cargo. In few other cases, the charterer may have the choice of keeping a ship waiting for ice conditions to head off. o Negligence clause - Negligence clause is made to relieve the ship-owner for the losses or damages that the cargo is subjected to because of the negligence of his/her servants or agents. o Ready birth clause - Ready birth clause states that lay days would start to count as soon as the vessel has reached at the port of loading or unloading. It protects the ship owners interests against delays which may arise in between the voyage. Q.4 Ans.... Categories of air cargo containers There are four basic categories of air cargo containers. Figure 8.3 depicts these four air cargo categories.

Four Categories of Air Cargo Containers

Air cargo pallets - The air cargo pallets are designed to fit for use with conveyor in the terminals and in the aircraft. Low-profile flat pallet is equipped with fittings in order to secure the pallet firmly to the main deck of an all-cargo aircraft. Cargo nets are used to secure the cargo to the pallet and tensioned straps are used to tighten-over the cargo. Contoured air cargo containers - In order to load cargo into an aircraft, it is kept within a safe dimensioned and contoured semi-structured covers known as Type A is used to provide protection. One side of the container is open and the cargo is secured using nets or fibre glass removable doors or metal with sealed capacity. Lower deck containers - The lower deck containers were developed for use in the lower deck cargo spaces of very high-capacity aircraft that are completely enclosed and fully structured. The container in which cargo is to be loaded is generally equipped with shelves that can accommodate small and irregularly shaped cargo. The container doors are made up of metal or fabric or a combination of both and are sealed at both ends. These containers are directly locked into the air-craft restraint system without the aid of any nets or tie-downs. Box-type containers - Box-type containers were developed to have standard size to ensure establishment of uniform shipping rates. Freight forwarders make use of box-type containers to consolidate shippers cargo into one rated unit. The containers are made up of wood, fibreglass,

plywood, fibreboard, metal or a combination of them. Advantages of containers The advantages of containerising air freight shipments are: Lower transportation charges when a shipper has a large enough shipment to fill or nearly fill the container used with respect to airlines supplying the container. Reduced packaging charges due to the protection provided against handling mishaps. Shippers being able to seal containers to prevent pilferage. Shipments arriving as one single unit and thereby avoiding delay or missing parts. Simplification in counting and checking the number of pieces at the destination. Lowering transportation cost for high-density freight shipments in containers when compared to surface transportation. Q.5 Ans....... SubhathraInbound Logistics Functions Inbound logistics is the process of moving goods or resources from the suppliers to the manufacturers. It is mainly associated with import or procurement of the goods or raw materials. Figure depicts the three functions associated with inbound logistics

Types of Logistics Functions

Production scheduling An organisation must schedule the production process based on the plant competence and accessibility of inputs to balance the demand for and delivery of products. In global logistics one must consider the foreign exchange issues, distance and time taken for the goods to reach destination and regulations on import, etc. Therefore, organisations that aim to expand their businesses across the globe, design products that can be manufactured and sold in different parts of the world. SubhathraInbound materials and components procurement must be scheduled to meet the demands of the production process. Production process varies with the sales forecasting as it is scheduled to meet the existing and future orders. Once the product is manufactured, shipment schedule must be done to transport it to the customers. The logistics manager develops a plan for effective transportation by reducing the logistics cost based on the delivery destination. If the production is done on time, timely transportation and delivery can be achieved and also helps to share the delivery timelines with the customer. Procurement Procurement is directly related to production schedule as the raw materials used for the production

process must be purchased from the vendors. The logistics manager must manage the transportation of procured goods. For, example, if the vendors logistics manager takes care of the delivery of the goods, the buyers logistics manager should keep track of the delivery performance i.e., check that the products are in good condition and reaches on time. A logistics manager must be aware of the political stability of the country from where the goods are purchased because the risks are higher in importing than exporting. Foreign exchange always creates issues due to fluctuations in the currency value, as confusion arises when you want to pay the supplier. Some organisations outsource the procurement activity to a third party since it is cost effective. Handling returned products Some products do not meet the standards of the customer or are defective and such products are returned back to the organisation by the customer. Organisations recall products due to defects. This type of movement of goods is called reverse logistics, where the goods flow backward i.e., from the customer to the organisation. Usually, the retailers or consumers return defective products to the manufacturers or forwarders. Products that are on the shelves for a long time and that cannot be sold are also returned back to the manufacturers. Returned products should be in good condition. The level of treatment required to make the product fit for resale is decided based on the quality and condition of the returned products. For example, in Subhathrathe U.S., every product has expiry date after which the product cannot be sold and it has to be sent back to the manufacturer. Also some products are returned by the consumers for repair, replacement or recycling. Now-a-days reverse logistics is becoming very important. Mastering the reverse logistics process has a direct impact on the organisations business. For example, company's return of investment will increase and the companys level of customer service required to compete in the market can be optimised. Therefore, the organisations that operate supply chain at global level must realise that products can be returned from their customers from across the globe. They need to have efficient logistics to collect back the products from the customer. Many companies outsource the reverse logistics activity to third party logistics operators. Q.6 Ans......... Issues in Importing and Exporting The manufacturing company must consider various additional items while using global sourcing. Some of the important issues that must be considered while importing or exporting are: Child labour Changing tariff structures Exporting for assembly in bond and counter trade Countertrade Let us discuss these issues in detail: Child labour - A number of US retailers were found to employ children and convicts to produce the products that they sell. In 2001, there was a news regarding a huge number of teenage boys were held in slave-like conditions in some central African locations of cocoa plantations. The manufacturers must continuously monitor the sources to ensure that they are not supplying materials produced under inhumane conditions. For example, UNICEF does not purchase the supplies from the companies directly or indirectly involved in the use of child labour. Changing tariff structures - In this issue, reducing tariffs for selling goods is of major concern. According to WTO rules, over the time, the government of a country must lower the tariffs for its goods in trade to make global sourcing more economically attractive. This provides companies operating from that country a competitive advantage in pricing. Supply chain managers should expect continuous fluctuations as nations continue to battle in the trade wars. For example, in 1993 United

States threatened to raise tariffs on French wines to a level that would have tripled the price to American consumers. This threat was issued as a response to the imposition of higher tariffs by French on some American agricultural commodity goods. If such threats were implemented, the consumer market for French wines in United States would have dramatically changed. Exporting for assembly in bond - It offer alternatives to the procurement decisions of the buyer so that they can take the advantage of the lower wages at some foreign zones. For example, Maquiladora forms assembly in bond with a manufacturing company. Raw materials and partially finished goods can be sent to the special border zone factories located at low cost labour zones, where additional assembly work is completed and then transferred back to the supplier or transferred to the buyer. Counter trade - Counter trade has become popular, as developing nations have incorporated them as a means to economic development. Underdeveloped countries often have goods or services that can be traded in the absence of the foreign exchange for the goods or services received from more advanced countries. Counter trade can take any one of the following four forms: o Barter - It is a one-for-one exchange of goods where no money is exchanged in the transaction process. It is the simplest and straightforward form of counter-trade. o Buyback - In this form, the seller provides the raw materials of production in return for the manufactured goods to be delivered later. o Switch trading - It is the more complex form of counter trade and involves a third party to provide counter trade arrangement. In this form, an exporting nation takes payment from an importing nation in the form of goods from a third country. That third country is generally in exchange shortage with the importing nation and accepts the importing nations currency in order to reduce its exchange shortage. o Counter purchasing - This form has become increasingly popular. In this form, a company exporting its goods agrees to accept payment in some other form of goods. Thus, the exporting and importing process must be carefully handled by both buyer and seller to minimise the loss incurred due to these issues.