Your Air Freight Questions Answered–The Operations Edition (Part 2)

Your Air Freight Questions Answered – The Operations Edition

air freight When you’ve been in the air freight business as long as we have (Established 1977 – thank you very much) you encounter nearly every scenario possible where it comes to moving goods by air. We once saw an air freight shipment of a mast for a sail boat that was so long it had to be loaded by popping out the cockpit windows, sliding in the mast and then securing it for flight. The question most asked after hearing that story is “how did they fly the plane with open cockpit windows?”. They didn’t. The windows were removed for loading, then put back in so that the plane could actually fly. The point is that for every air freight scenario that comes up, we get a lot of questions. Many of them are good ones, and so we’ve chosen some of the better ones, the ones that actually relate to problems our shippers have or that they struggle to understand. Our most recent post of air freight questions focused on air freight economics and pricing. This time we’re answering questions about air freight operations that have an effect on your shipments:

Q: Why is it so hard to just “get another carrier” or “change airlines” when a shipment gets delayed or stuck?

A: This is a great question and we get a lot of calls from shippers who say “another forwarder got my freight delayed in Hong Kong, which is such a big airport, but now they can’t move it onwards. Can’t you just switch it to another airline?”.
The answer is “no” and there are some very logical reasons for it. To begin with, it’s important to realize that general cargo, unlike “self loading cargo” a/k/a passengers, can’t simply walk over to a ticket counter, present documents and a credit card and be transferred to a new airline. Despite being a highly dynamic product, air freight is built on some fairly rigid processes and as a result once a shipment begins its journey under an airway bill assigned to a specific freight forwarder, no one can control that shipment except the airline and freight forwarder who issued it. The ground handling companies who actually move the cargo at airports work exclusively for the airlines; the pricing of the shipment is strictly between the forwarder and the airline; and while the cargo is in transit it stays in secured, bonded areas where no one can reach it other than the ground handlers. That secure and bonded status extends to the legal status of the goods in transit as well, meaning no local forwarder or alternate airline can step in and take over the goods per local customs and international trade procedures. The best example we give customers is to think of cargo as passenger baggage. Once it misses a connection in London, there may be countless other flights available, but the airline who checked in the baggage is the one who has to get it to final destination. Even if another carrier is used, this can only be arranged and controlled by the initial airline with whom the baggage/cargo was checked in. This same constraint, however, becomes a way for us to add value to our clients air freight spend. By using our “direct or faster” approach to air freight, we at Crescent Air Freight rely primarily on direct flights for the transit of our customer’s goods. Our logic is simple here as we believe fewer stops, transfers and layovers eliminate the potential for delays, damages or misrouted goods. We take delays especially seriously since our customers are paying for speed when they choose air and very often every single transit day matters. So, while we might get a cheaper rate flying from New York to London via Frankfurt, we also know that we’re adding on 2-3 days of extra transit time and very few of our customers want this. Then comes the “…or faster” consideration. There are many instances when no direct flight option exists, or very often an indirect carrier will have more flights into a specific city or country than a direct carrier offers. This is very common for some extremely important markets like Africa, Central Asia and the Indian Subcontinent. Cargo destined for countries in these regions often arrives at destination faster when flown on an indirect carrier via Amsterdam, Brussels, Dubai, Frankfurt or Paris.

It sounds simple, but this is an important calculation that every freight forwarder needs to make when choosing how to route a shipment. The key consideration always should be: “what’s the best value for the money a client spends?

Q:  Why do air freight forwarders focus so much on cargo dimensions

A: We get this one so often, and despite answering it for customers repeatedly, they still express irritation over it. Let’s get a couple of things clarified about this matter up front:

a. The vast majority of aircraft in the world are passenger aircraft. According to Boeing’s “Current Market Outlook 2013-2032” approximately 2,300 of those planes are large and medium wide body jets which have the capacity to carry large cargo loads (you can think of this is cargo built onto pallets – whereas narrow body jets are better suited to small packages and hand loaded cargo)

b. On wide body passenger aircraft, freight cannot exceed 64 inches in height. If a piece of cargo is 64.25 inches in height it will collide with the passenger deck. So, here’s your first problem. The height of cargo is critical in determining what aircraft is to be used and since there’s a greater supply of passenger aircraft than freighter aircraft, simple economics dictates that you will likely pay more if your cargo can’t fit on a passenger flight.

c. Then there’s the matter of limited capacity on a plane. Most airline pallets are 20’ long. If cargo exceeds 20’ in length it overlaps the pallet and potentially makes the entire neighboring pallet unusable. This costs airlines money as they cannot access capacity in a cargo hold that is already short on space.

d. Even if your cargo doesn’t overhang, there’s still a significant penalty for having cargo that doesn’t allow the airline to maximize the tonnage capacity of their aircraft. This is a concept known as density and it implies that the airline loses money for transporting goods that weigh less than the aircraft cargo’s payload but occupy the same amount of space.

e. The density calculation most relevant to air cargo is that of volume:

(Length x Width x Height) x # of Pieces = volume weight in pounds
166

Or

(Length x Width x Height) x # of Pieces = volume weight in kilograms
366

The airline calculates air freight charges on the higher of the volume weight or the gross weight. This is a standard industry convention and really isn’t negotiable, so don’t think that your freight forwarder is playing tricks on you. As a shipper you should be well aware of the density or lack thereof of your cargo. Shippers of goods like telecommunications equipment, networking gear, plastic goods, and automotive accessories are especially likely to pay for volume. Meanwhile shippers of cheese, metal, lumber, and liquids never really have to worry about volume as their cargo is far too dense.
So, the answer to these question is an economic one. Knowing your dimensions can make a tremendous difference in your air freight costs which ultimately impacts profitability.

There’s a good deal more than just “buying” and “selling” that goes into an air freight shipment. As far as operations are concerned, a client’s orders to “just get it there” require a lot of planning and expertise. Having four decades of experience makes Crescent Air Freight uniquely well suited to understanding the complexities that come with international logistics and to creating solutions that make the process easy and cost effective for our clients. We look forward to your questions and comments, and best of all, you don’t have to be a customer to ask a question. Just send a Tweet @CrescentAF or email us at cargo@crescent1.com and we’ll be happy to answer your questions any time.

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Your Air Freight Questions Answered – Part 1

Your Air Freight Questions Answered

Loading air freightHere at the Exporting Excellence™ blog we invest a great deal of time in answering questions about international air freight for our clients.  What we find most interesting is the fact that these questions don’t just come from small or mid-sized customers, but even from Fortune 500 sized shippers who have large air freight volumes.  One of the most important ways we at Crescent Air Freight add value to the business of our clients is by eliminating the complexities that come with international logistics.  To that extent, we’ve put together a series of FAQ’s that we have encountered from shippers of all sizes and from across various industries.  Here’s a selection of some of the more frequent questions and our answers:

Q:             Why does air freight cost so much? 

A:              The answer lies in simple economics: there is a scarcity of space on an aircraft.  Long range, wide body passenger aircraft typically carry 15 – 20 tons of cargo on a flight and that’s only if passenger baggage and fuel capacity allow for it.  On top of that, since cargo on a passenger flight goes in the aircraft belly, the maximum allowable height of the freight is only 64 inches.

With freighter aircraft, the maximum payloads are about 100 – 110 tons per flight, and maximum heights can go up to 108 inches (sometimes more depending upon the contour of the aircraft and the cargo).  Contrast this with a 20’ ocean shipping container which can accommodate a payload of more than 20 tons, and you begin to see why space is always at a premium on an aircraft.

Q:             Are there any ways to reduce or offset the costs of air freight, without settling for an ocean freight transit time?

A:              We get this question very often, and there are several ways to answer it.

To begin with, the economics we mentioned above can’t be totally ignored.  Space on an aircraft always comes at a premium.  Typically direct flights and non-stop flights justify a higher price because of the speed of transit and reduced potential for delays.  Hence, one cost saving solution shippers can opt for is an indirect service, which typically involves a slightly longer transit for a slightly lower price.  As an example, cargo flying from New York to Sydney, Australia on a direct flight with QANTAS moves at nearly double the cost per kilogram of the same shipment traveling on Qatar Airways via Doha, using 2 flights.  This may seem odd to the consumer: 1 flight ought to be cheaper to operate and load versus 2 flights and a longer route.  However, the carrier offering direct service justifies their price premium by getting cargo directly to destination in a shorter time frame.  The indirect carrier justifies their discount by pulling in cargo from all their destinations into a single freight hub and profiting from the potentially greater volume (in theory, anyways).

What new shippers typically fail to understand is that the cost cannot be continuously decreased by increasing the transit time.  So this creates a common follow up question such as “Can you give us a really slow service that takes 7-10 days maybe for a really low price?”.  This is something that really doesn’t exist, and if a huge price discount is to be found it’s probably because the airline has no traffic going to a particular destination and hence markets the space more aggressively, rather than pricing the service based on transit times.

There are, however, some scenarios where we are able to get creative with the mode of transport by adopting a multi-modal solution.  For example, cargo being routed to landlocked countries in Central Africa, Central Asia or Central Europe can be sailed to major nearby cargo hubs such as Abidjan, Bremerhaven, Dubai or Sharjah and then flown or trucked a short distance to countries of final destination such as Afghanistan, Mali, Switzerland, etc.  This sharply reduces the total landed cost of product at destination and also improves transit time over a pure ocean service.  We offer similar solutions for our customers in the garment and textile industry by sailing cargo from Bangladesh to Dubai and then flying the goods to the United States, thus taking advantage of low inbound air freight rates and ample capacity that is typically not available in the country of origin of the goods.  Sometimes the opposite works too as cargo can be flown from a landlocked country such as Nepal, into a major nearby port city and then transferred to ocean containers for final transit to Europe or the United States.

The ultimate way to avoid air freight costs, of course, is to not ship via air at all, and for customers who do not ship enough material to fill an ocean container on their own, the option of LCL ocean freight exists.  Of course this is a longer transit time service than even standard containerized ocean freight, but the cost is often justifiable.

All of these scenarios, however, do require planning and that’s really the most important thing for a logistics manager to realize.  Planning with your service provider and sharing information on required transit times, budget constraints, deadlines at origin or destination, etc. will allow your freight forwarder to come up with the right solution for your business and even for your individual shipment.  “Just get it there” doesn’t work and is akin to randomly pulling a suit off a department store rack and telling the tailor to “just make it fit”.

Q:             Do we really need to pay for a premium or time defined/guaranteed service?  Can’t you just use your influence with the airlines to make our cargo move faster? 

A:              Definitely, maybe…

This question comes up a lot and many times the part about using “your influence with the airlines…” can come across as more of a taunt than a request!  The reality is that just like in many other businesses, with air freight (and logistics in general), you get what you pay for.  If your cargo needs to be kept in a cooler between flights and upon arrival at destination, then a freight forwarder will usually get you a service that may be slightly more expensive than general cargo, but far less than the cost of leasing a refrigerated air freight container.  The airline would want you to lease the refrigerated container and maybe even pay them round trip airfare for it, but your forwarder adds tremendous value here by providing you a “product appropriate”, cost effective service option based on their knowledge of your product, temperature requirements and by proposing reasonable alternatives.  However, once again the key here is communication.  If a shipper fails to disclose their true temperature or handling requirements for the sake of saving money and the goods suffer damage as a result, then there’s nothing a forwarder can do, especially after the shipment has been executed.

Temperature controlled goods present a truly special case as do high value goods and a few other select product categories.  Other times shippers have general cargo to ship via air on a very tight deadline.  In such circumstances time definite or guaranteed services are worthwhile.  The cost may be triple that of regular air freight, but if a customer is facing a production shut down, or an inventory problem that must be solved in a short time frame then it’s obviously worthwhile.

Over the past 39 years we have accumulated a lot of questions about the air freight and logistics process in general. In fact we just focused on price issues in this post and next month we’ll focus on air freight service and operational questions that arise on a daily basis.  In order to make the series work for you, we suggest you leave your questions in the comments below, or if you prefer, try sending us your questions by email at cargo@crescent1.com or on Twitter at @CrescentAF.

 

Amazon Gets Set to Disrupt the Freight Forwarding Market

Amazon Gets Set to Disrupt the Freight Forwarding Market

amazonAfter building an enviable fulfillment process and network, acquiring trailers to transport goods between fulfillment and sortation centers, dabbling in its own delivery services and dipping its toes in air cargo, Amazon is now eyeing the ocean freight forwarding market. 

Should other freight forwarders be concerned?

Freight forwarders are already facing a difficult market thanks to overcapacity, declining rates and a global economy that has remained in the doldrums for several years. However, as Amazon enters the NVOCC realm, there are bells going off in many freight forwarding offices.

Amazon is a monster e-commerce provider, an IT firm and a logistics provider. It is also a major customer of such delivery companies as FedEx, UPS and the USPS. In fact, according to some publications, Amazon is a $1 billion customer for UPS alone. $1 billion in transportation spend with UPS alone – that’s perhaps the main reason for building out its logistics and transportation network – costs are soaring – and so Amazon apparently has decided to bring it all in-house.

increase your airfreight revenuesDespite the precarious industry headwinds facing freight forwarders, Amazon’s NVOCC registry from the FMC depicts its Asian ambitions.  Amazon’s official name on the FMC’s NVOCC registry is Beijing Century JOYO Courier Service Co. Ltd. JOYO was a Chinese e-retailer acquired by Amazon in 2004 and also marked Amazon’s entry into China.

According to industry speculation, Amazon could provide freight forwarding services to Chinese companies looking to export products directly into its Fulfillment by Amazon (FBA) warehouses, or perhaps even “cross-dock” the goods to inject into Amazon’s US delivery network. In addition, Amazon could provide a service most other freight forwarders are unable to – limiting the number of cargo ‘handoffs’ within the supply chain as well as fully taking advantage of its strong IT capabilities to further automate the process.

Amazon will come up against stiff competition. Alibaba, China’s own monster e-commerce provider, IT firm and coordinator of logistics services, signed an agreement with China Shipping Group, its subsidiary, China Shipping Network Technology and sister company China Shipping Container Lines in 2014 to set up an integrated and cross-border logistics platform. The platform will allow for both China Shipping’s and Alibaba’s clients to use it for price inquiry, ordering, tracking and settlement.

The race is on between the world’s two largest e-commerce providers and logistics is where the competition will ultimately determine the winner and perhaps redefine a freight forwarding market in need of change.

The World Needed Another Article on Amazon’s Dominance?

We actually put this article together for a very different reason than to just comment on Amazon.  At Crescent Air Freight we are not only a freight forwarder and NVOCC, but we’re also a consolidator which means we do business with other freight companies.  Many of our industry customers are ocean freight forwarders, NVOCC’s and customs brokers who don’t have in house air freight capabilities.  In other cases we’ll work with freight forwarders who may be licensed for air freight shipping but simply don’t have access to the pricing that we do.  So in that respect, we see some significant value in what Amazon could bring to the logistics marketplace.

Here’s an example of how we cooperate with industry competitors and how Amazon could do the same:

unlock the airfreight business in your customer baseWe have an NVOCC client who has no air freight capability, but they have tremendous ocean freight volume from various U.S. exporters.  A small percentage of the business that their customers have requires air freight service, and our client was simply letting that traffic walk out the door as they were unable to service it themselves.  Crescent was able to put together a simple set of rate and booking procedures that effectively made us the outsourced air freight vendor for this client.  As a result they are now able to capture over $50,000 in annual net revenue from this activity alone.

Now imagine Amazon’s volume of container traffic from China to the United States alone.  By choosing to become an NVOCC instead of a BCO (Beneficial Cargo Owner), Amazon is clearly signaling that they intend to make money off the sale of ocean freight services.  So imagine, just as a consumer goes to the Amazon Marketplace and chooses from 10 different vendors of the Apple iPhone, your freight business can now get centralized access to 1 set of prices for containers from Shanghai to Long Beach (for example).  No more price fluctuations, no more bloated destination charges from multiple handling agents and warehouses, etc.  Just one simple price.  That’s the power of what Amazon’s entry can mean to the market for U.S. import logistics.

Freight forwarders will be mistaken to see this as competition.  Amazon has repeatedly shown that “coopetition” with small businesses and other vendors – including those who sell competing products – is integral to their business model.  We believe they’re going to harness their considerable buying power in the freight markets to do the same for container shipping from Asia to the United States.  And this is no small undertaking – Far East Asia supplies over 50% of U.S. imports!  Clearly Amazon sees vast potential to deliver savings and take a cut for itself.  So how is this not competition for forwarders?  Well, in simple buying & selling terms it has to be considered competition.  However, in terms of value added services, it’s actually going to be a benefit to freight forwarders and NVOCC’s.  Considering most forwarders, especially small to mid-sized ones, deliver unsurpassed service benefits to their clients that large forwarders and integrators don’t, the actual cost of freight is nowhere nearly as significant as one might think.  If you’re a small or mid-sized forwarder who continues to add value to your customer’s business, then Amazon is about to drive down costs and stabilize them for your benefit as well as for the benefit of your customers.  If you’re a freight forwarder who currently does not service China origin business, Amazon may just give you a chance to capture business you’ve been neglecting due to lack of access or in house capabilities in the way that we did for our NVOCC customer.

So we say, “Welcome Amazon”.  It’s going to be fun competing with you and growing with you.

grow your air freight business today

The Pain of Demurrage Costs

The Pain of Demurrage Costs.

At Crescent Air Freight we spend a lot of time focusing on the hidden costs of logistics. We get clients and prospects to see what bad logistics can cost them far beyond the freight invoice by examining the impact on cash flow, profitability and brand equity. The concept is simple: poor logistics decisions (usually based on price alone) can result in delayed deliveries which can cause delayed payments, lost sales, and lack of product availability in overseas markets. However, there’s also a very real cash cost that comes with improper logistics planning and it’s known as demurrage.

demurrage costs

Demurrage, also known as detention, is a cost resulting from extended use of equipment, warehouse space, or other transportation resources. Basically, it’s a penalty charged for using someone else’s equipment or space. For example, railcars accrue demurrage if they are not unloaded in a timely manner; Vessels accrue demurrage if they are forced to wait at a port beyond a standard free time allotted by the port authority; Truckers charge detention when vehicles or drivers are made to wait for cargo pick up or discharge.

The problem that arises is when a demurrage or detention scenario arises, cargo owners often find their goods being held at ransom. Demurrage or detention charges are almost always expensive and your goods cannot be released until those charges are paid. Even worse, since such charges accrue on a daily basis, there’s very little room for negotiation and the final cost can change based on the time of receipt of payment!

NEW INCOterms CTAUnlike standard INCOTERMS which sets protocols for “who pays what”, the unfortunate reality is that demurrage costs are basically paid by the party who wants their goods so badly, they’ll even pay a penalty just to get them. Honestly, this can be avoided…it doesn’t have to happen. The solution to the problem, almost always lies in being prepared ahead of time and planning for eventualities. Matters like vessel detention or railcar detention tend not to be very relevant to the supply chains of our customers. However, port detention of export or import containers, airport storage of air freight shipments, and carrier demurrage charges for ocean freight containers gated out beyond “free time” are all examples of demurrage that occur on a daily basis. Obviously, this imposes heavy costs on cargo owners and can be avoided with better logistics planning.

Solutions to the demurrage/detention problem begin with the proper planning of a shipment and all the formalities associated with the arrival or departure of those goods. For example, we once had a client who wanted their export cargo out of their warehouse and into a container 7 days prior to the cut off date for a vessel headed to Australia. The problem was that the steamship line only allowed the container to be pulled out for loading purposes 5 days prior to the vessel cut off. Our client was unaware of the fact that they would have to pay a penalty for being 2 days too early. The solution was rather simple: we researched the details of the fees, calculated the cost of the extra storage and asked the client if they were willing to pay for it. Guess what happened? The client said “no”! They were very appreciative of us taking the time to research the cost associated with their plan and helping them to understand their true costs. However, had we not done this, it would have resulted in a few hundred dollars of charges that their trucker would have to pay upon returning the container. That’s right, the trucker would have been on the hook, and that’s one of the tricky parts of demurrage costs – it doesn’t just affect the cargo owner, but can also create headaches for their vendors or customers.

At other times, the problems can be caused by documentation mistakes in customs paperwork resulting in cargo being held at the port of destination. In such an instance, the delay might be caused by the exporter or importer of record, and it is the local customs authority that raises the objection, but the storage expense accrues at the airline terminal and often has to be advanced by the customs broker or trucker collecting the cargo at time of release. We once saw a client lose tons of a perishable food product in Turkey this way just because their logistics service provider at the time neglected to get documentation approved in advance of the shipment. That one step alone would have prevented thousands of dollars in unnecessary freight charges plus the confiscation of product.

Sometimes, the shipper can choose to take the cost of demurrage or detention as a cost of doing business. It can be strategic at times, although still a cost. Remember the client who tried to ship too early? Well, some months later they actually asked us to pull a container ahead of the free time allotted by the vessel operator just so they could have their product shipped out before the end of the quarter. In this scenario, it was actually beneficial for them to pay for detention rather than to have the good be in inventory at the start of a new month.

And, every once in a while, we get to see a cool scenario unfold where the shipper gets the last laugh. For example, at various times during the ISAF war effort in Afghanistan, ocean freight containers were delayed at the border crossing between Afghanistan and Pakistan. At certain times of heightened tensions, the delays stretched into weeks and demurrage applied to the shipping containers to the tune of thousands of dollars. The liners demanded these charges of truckers when the unloaded containers were brought back to the port and shippers, including many U.S. companies, were forced to pay penalties that were vastly more expensive than the cost of freight or even the merchandise itself. However, with some crafty logistics support on their side, some shippers simply decided to buy their own containers and ship them full of goods. The cost of buying a “shipper owned container” is higher than the cost of using one owned by the liner, but shipper owned containers are not liable to “in & out” demurrage costs. In effect the shipper’s were treating the containers as disposable and not bothered if they came back at all. This actually was the most cost effective solution to countering exorbitant detention costs that shippers were forced to pay.

These are just a few examples of how logistics costs can have a devastating impact on order profitability. However, the good news is that many of these problems can be avoided if your logistics service provider takes the time to understand your business, specific product requirements, and your import/export goals.

 

 

 

 

“Nearshoring” Opportunities on the Rise

“Nearshoring” Opportunities on the Rise

Screen Shot 2014-11-14 at 2.08.41 PM

While there can be no denying that China has established itself as the world’s “manufacturing floor” over the past two decades, there are many reasons to suggest that U.S. companies are starting to see benefits from bringing their production back to North America. Factors such as labor productivity, transportation costs and energy prices are playing a significant role in eroding the benefits companies have enjoyed in sourcing from China. Also, as U.S. firms are becoming increasingly concerned about protecting their intellectual property, “nearshoring”—or bringing production closer to the point of use—becomes attractive as the risk of having important intellectual capital stolen is decreased. Having the capability to manufacture close to where ones customers are located can also increase customer responsiveness and decrease turnaround times, making the supply chain more predictable.

The United States is in the midst of narrowing its gap with China in overall manufacturing costs. Some have estimated that by as soon as 2015 the US could be in a cost parity situation with Chinese manufacturers. Many individual states now offer significant incentives such as state income tax rebates which reduce the aggregate cost of production thereby offsetting the lower wage benefits that come from China based manufacturing. As a recent example, the state of Nevada awarded electric automobile manufacturer Tesla a package of $1.25 billion in tax incentives to build a battery manufacturing facility in their state. Tesla will be able to operate in the state essentially tax free for the next 10 years. This is notable not only for the size of the package, but for the nature of the commodity.

China is a leading source of battery supply to the world, however the case for manufacturing in the United States is compelling. U.S. labor productivity remains substantially higher than that of many countries. In the case of China, a recent study by Boston Consulting Group suggests that adjustments for labor productivity make Chinese wages only 30% cheaper than U.S. wages. As wages are generally estimated to be 20%-30% of product cost, it becomes apparent then that U.S. manufactured goods are roughly 15% more expensive than Chinese made product and that is before accounting for transportation and logistics costs. Hence, true cost advantages to manufacturing in China may only be 10% or less.

Energy prices in the United States have contributed to the drop in production costs thanks to the countrys’ boom in natural gas and oil production. As a result, the energy costs of a U.S. based factory are amongst the lowest of any industrially developed country in the world.

In recent years, Mexico has also established itself as a source of cost effective production, especially for the North American market. Eighty percent of the cars built in Mexico are exported to other countries, about two-thirds of them to the United States. “I can export duty free to North America, South America, Europe and Japan,” says Volkswagen of Mexico Vice President of Corporate Affairs Thomas Karig.

“There’s not another country in the world where you can do that.” Over the past decade Mexico’s wage gap with China has almost completely vanished. As a result, manufacturers, particularly in the automotive sector, have been investing heavily in building manufacturing capacity in Mexico. The country’s proximity to the vital U.S. market also allows it to benefit from lower transportation costs.

While most of the variables that go into deciding whether to “offshore” or “nearshore” production are influenced by macroeconomic issues, logistics service providers can play a significant role in advising clients on the benefits of selecting a particular country for manufacturing. Insights into transportation costs, logistics infrastructure in foreign countries, import duties in the United States, the existence of free trade agreements, and other such matters are part of a logistics provider’s daily process and can be instrumental to U.S. companies in determining the value of a country as a market for sourcing or overseas sales.

Of course, challenges remain. Companies would have to rebuild their supply chains and identify people with the right skills to handle increasingly sophisticated automated operations. Also, U. S. tax policy makes firms reluctant to repatriate profits earned elsewhere, making it more difficult to find the resources to invest in manufacturing operations.

With all these things considered, manufacturing has a chance to stage a comeback in the U.S. and as with all things, getting in on the ground floor is an exciting prospect for the import/export industry.

 

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The Importance of Understanding Dimensional Weight

The Importance of Understanding Dimensional Weight

A great deal has been written in recent months about the decision by FedEx and UPS to increase pricing based on dimensional weight of cargo being shipped. Most recently, Forbes published this article on the subject http://www.forbes.com/sites/robertbowman/2014/08/19/with-fedex-and-ups-rate-increases-looming-shippers-explore-their-options/ .

This increase in pricing is making news now primarily because of its impact on e-commerce shippers. However, dimensional weight pricing has been a fact of life for shippers of air and ocean cargo for many years. So, what’s all the fuss about and why does dimensional weight even matter?

In the logistics industry, especially in the air cargo market, dimensions are crucial. The logic is actually quite simple here as there is a limited amount of space available on an aircraft and larger freight simply eats into that capacity.

When explaining logistics to customers, we often ask a simple question:
“What weighs more: a ton of feathers or a ton of bricks?”.

ton of bricks vs. ton of feathers

Some people quickly answer “bricks” without giving it much thought. Of course, this is wrong!
The correct answer would be “a ton is a ton no matter what the commodity” and therefore both would weigh the same.

However, when it comes to shipping, it’s the ton of feathers that “weighs” the most.

The explanation for this lies in an age old concept of physics called “density”. Quite simply, bricks are dense objects and feathers are not. The problem with objects that lack density is that they occupy more space than items which are more dense. Hence, a typical pallet or skid of bricks could easily weigh 1000 lbs, whereas the same pallet loaded up with feathers would scarcely weigh 100 lbs including the weight of the pallet itself! For an airline or a trucker, the lower the density the more space they lose inside their aircraft or trailer and as we mentioned before lost space eats into revenue and profits for the carriers.

In order to offset the loss in revenue the carriers use a formula to calculate dimensional weight, which is:

Length x Width x Height x # of pieces / 166 = volume weight or dimensional weight in lbs.

Length x Width x Height x # of pieces / 366 = volume weight or dimensional weight in kilos.

Let’s take a look at an example of what could be shipped on a dimensional weight basis. Say, for example, a shipper wants to send a consignment of networking gear (routers, switches, reels of cable, etc) by air from San Francisco to London. We’ll leave out the actual pricing for the moment, but let’s see what impact the dimensions have on the chargeable weight of the shipment.

Presume the shipment consists of 3 pallets weighing 250 lbs. each and with dimensions of 40 x 48 x 62 inches per pallet. The gross weight of this shipment would be easy to calculate: 250 lbs x 3 = 750 lbs. (340 kilograms). The dimensional weight of the cargo is going to be 40 x 48 x 62 x 3 pcs/166 = 2,151 lbs. (975 kilograms).

As you can see, by not charging on dimensional weight, the trucker or airline is getting paid for 750lbs of freight while giving the customer 2,151 lbs. worth of space. In international shipping, and especially by air, the carrier charges the shipper for the higher of the dimensional vs. gross weight. We chose networking gear as a good example, because products such as computer equipment, electronics, and their accessories are very often subject to the discrepancy between gross weight and dimensional weight. So too are products such as point of sale displays, signage and advertising materials, certain foods such as marshmallows, crackers, biscuits, etc. as well as many others.

High density products can also come from these categories, however. For examples laser printers, despite being computing equipment, are high density items. From the foods group, cheeses and liquids such as juices, sauces, etc. are high density items. Also within the paper products group, items such as pulp and paperboard are high density items. So too are building materials such as tiles, ceramic goods, etc.

For examples affecting e-commerce shippers, try looking up a commodity on Amazon, Ebay or other leading e-commerce sites. A good example would be a plastic chair mat such as the one beneath your office chair. In many instances you will find that the cost of shipping this type of product exceeds the value of the merchandise itself. That’s essentially what dimensional weight pricing now means for customers of online retailers.

While some commodities just cannot be shipped by any other means, in many instances shippers can reduce or possibly eliminate their exposure to the spread between gross weight and dimensional weight by taking actions such as making changes to packaging. Simply using smaller boxes, and protecting product inside the boxes with sufficient, but not excessive packaging material can make a significant difference in the density of freight, for example.

Alternatively, international shippers, and companies who move larger cargo may choose to mix & match their shipments so that low density freight is bundled with high density merchandise thereby allowing the aggregate consignment of goods to enjoy a more favorable weight charge.

Knowledge of dimensional weight and the density of one’s cargo is critical to protect your profitability and keep your costs in check. As we have explained in some of the above instances, freight charges can increase by 3x or more due to lack of density, and if a shipper is unaware of this, their export business can be severely compromised.

Container Info & Spec Sheet

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MINT- The new BRIC

MINT- The new BRIC

During the first half of the year 2014, we focused on the BRIC nations: Brazil, Russia, India, and China.

Map of the MINT countries

Now as we move towards the latter half of 2014, we plan to focus on yet another group of emerging markets vital to the international business prospects of U.S. exporters: MINT. MINT nations consist of Mexico, Indonesia, Nigeria and Turkey.

Some of the major highlights of each of these markets, which we believe will be of great interest to U.S. exporters are as follows:

  • Mexico – According to economists, the average income of Mexican households will grow four-fold over the next 25 years. Along with this, recent market oriented reforms undertaken by the Mexican government are designed to attract more foreign investment. Thus the opportunities for U.S. exporters as well as investors seem to be very favorable for several years to come.
  • Indonesia – A stable political environment, strong coal reserves, a population nearly as large as that of the United States (est. 250 million) and a median age of only 28 makes this country an attractive destination for U.S. exports.
  • Nigeria – One of Africa’s largest countries, it has a population of 177 million. Powered by excellent oil reserves and recent implementation of stable economic policies, Nigeria expects a long period of sustained high economic growth. Export potential for U.S. goods is likely to grow in several sectors as a result.
  • Turkey – Due to its geographic location, Turkey enjoys the status of being both Eastern as well as Western. Having enjoyed strong economic growth over the past several years, it promises to be a continued source of opportunity for U.S. export and import growth.

Alongside the fruitful opportunities each of these markets presents to U.S. exporters, there are unique logistical challenges as well. Ranging from customs regulations to bureaucracy and infra structure issues, these challenges can pose great threats to export order profitability as well as business development. Thus, we at Crescent Air Freight look forward to leveraging our four decades of experience in international logistics by keeping you updated on the challenges of these markets.

 

 

Supply Chain Metrics as a Predictor for your Business

Supply Chain Metrics as a Predictor for your Business 

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As supply chain and logistics have transformed from afterthoughts of the business process to areas of preeminent concern, companies have adopted a variety of metrics to analyze their performance. The impact of supply chain reliability has been tested in recent years by events ranging from the latest iPhone introductions by Apple to the scarcity of gasoline in New York City after Super Storm Sandy. While these events occur on a massive scale, the key to successful execution lies in proper planning and measurement of a company’s supply chain and logistics processes. Outside of emergency events, supply chain metrics can be key predictors of future cash flow, profitability, market share, brand equity and many other variables that are crucial to an organizations success.

Some key elements of the supply chain that businesses of all sizes should be concerned with include the following:

  1. Backorder reporting – this metric essentially keeps track of the number of orders a company is not fulfilling due to lack of product. While the causes for backorders can vary from lack of raw materials to insufficient production, logistics professionals need to be aware of this information as it directly influences key transportation decisions such as mode of transport (air vs. ocean), cost of transportation (expedited vs. consolidated), and logistics budgeting (how much will your company spend to get goods to market in order to alleviate backlogs or backorders).
  2. Cycle Time – While often associated with manufacturing, the concept of cycle time applies to every business function. For logistics professionals key measurements such as “Order Promised” cycle time or “Order Actual” cycle time are important. Both of these measurements ultimately hinge on the ability of a company’s logistics process to deliver goods their customers. The impact of delays on customer satisfaction, cash flow/cash realization and brand reputation are significant and mode of transport is the final leg in the process.
  3. On Time Shipping/Delivery – This is an obviously crucial element of the logistics process, but there are a number of different ways to analyze it and its impact on an organization. To begin with, logistics decision makers should decide what they really want to measure. For example, a 99.9% on time transit rating of your logistics provider could apply to airport-to-airport transit time only, or perhaps the reporting is only accounting for the transit time from the moment cargo is received at the logistics providers warehouse, thus eliminating the time for booking processing, inland haulage and other elements from the process. In the ocean freight business for example, transit times are almost always quoted on a port-to-port basis. However, the shipper needs to be aware of lead times for haulage, close out times at the port and unloading time at destination.
  4. Transportation Metrics – There is a large amount of data that goes into transportation analysis. What’s relevant to your supply chain can vary based on your geographical location and markets, modes of transport and specific commodities. However, all logistics professionals will find themselves directly concerned with concepts such as “Freight Cost per Unit Shipped”, “Claims as a Percentage of Freight Costs” and “Transit Time” to name but a few. An understanding of these elements will help logistics decision makers understand the true cost of logistics and to avoid hidden costs that are often overlooked when the logistics buying process is based on price alone.

One key element that is a precursor to implementing these or any metrics is proper planning. Taking the time to understand what your firm actually wants to measure and why that’s important is necessary. In order for a logistics process to be successful, logistics decision makers must also be ready to share their plans and strategies with their logistics providers in order to ensure the metrics are met and the goals of supply chain efficiency are realized.

 

The Importance of Getting the Paperwork Right

Logistics Planning

The Importance of Getting the Paperwork Right 

There is no question that pre-planning and making sure everything is addressed ahead of time is the key to successful international shipping. Those who try to manage cargo movement without taking the time to address these seemingly bureaucratic issues will quickly find themselves being stymied and losing money as material sits for months on end at the first port of entry. Here are some time-tested tips on how to handle the paperwork successfully:

Different Country, Different Documentation Requirements – Every country’s government, even the smallest one, has some kind of regulation on what comes through its ports into the country. This is often a means by which the government can raise revenue through tariffs (import duties) or control competition at home (blocking competitors from shipping in or restricting them to a costly level). That regulation includes a list of documents that must be presented, including the cargo manifest, commercial invoices, certificates of origin and others. Fortunately, most countries make known what’s required ahead of time. Not providing these documents is just asking for a delay.

Make sure the documents can be read – If going into a country that speaks Spanish, English shipping documents aren’t going to help much. A copy should be prepared ahead of time in the destination country language. This expedites the review and eliminates delays due to not understanding what’s being shipped. It also helps avoid filing mistakes that could result in higher fees and tariffs.

Where possible go electronic – Most modern countries have the ability to take shipping documents electronically. This allows mistakes and issues to be spotted way ahead of the shipment arriving, giving time to sort out issues. It also improves transmission and proper receipt of shipping documents by the port authorities.

Double-check records regularly – Whenever possible implement a process whereby paperwork is checked over regularly, no matter how experienced export documentation personnel may be at preparing the shipping documents. This ensures that even the hardest to see mistakes are usually caught ahead of time instead of by a port authority.

Don’t Take Someone’s Word for It –

It's all good!Always confirm in writing that shipping documents have been received and are approved by a port authority. Relying on someone’s word only is a amateur mistake, and most port authority personnel shake their head at how often this error still occurs. It’s also usually a source of fraud if handled through a third party who disappears after the fee is paid for brokering services. By confirming ahead of time if things are in order, mistakes or corrections can be made early, well before a shipment arrives. That saves time as well as money in deliveries.

If all of these requirements sound like more risk than you are willing to take, then bring in a professional service that can manage this entire process for you. Companies like us have the ability to manage your shipments through our logistics process which we ensure aligns with your process as well as the import regulations of the country we are shipping into. As always, don’t be penny wise and dollar foolish when it comes to your logistics.

Understand Total Landed Cost

Understand Total Landed Cost

Screen Shot 2014-05-22 at 12.51.06 PMAs we mentioned in an earlier post, the benefits of exporting for your business can be substantial in terms of growth and profit. However, simply meeting overseas demand with supply is not sufficient to ensure that your export process works. Profitability is the obvious measure of success, and this is directly impacted by the concept of landed cost.
In simple terms, landed cost is the cost of your product delivered to or from a foreign country. Cost of product and delivery are the most common and obvious measures that an exporter must consider. However, there are significant additional costs that can drive up the landed price of your goods overseas. Knowing these costs is crucial in order for exporters to ensure order profitability. Some of the more common but frequently overlooked costs, that can impact landed cost directly, include the following:

• Freight – there are many components to freight cost in itself. Cargo has to be picked up domestically, sailed or flown overseas, cleared through various freight terminals at the destination, and trucked to final destination. Each of these steps carries a cost, and even after determining the cost of transport expenses such as airport terminal handling charges (charged by the airline and almost never quoted to the exporter), destination terminal handling (charged to the consignee at destination by steamship lines and very rarely quoted to the exporter) can apply and directly impact landed cost. Also, as shipment documents pass from the hands of various customs and documentation agents, service fees can apply that don’t get quoted to anyone in particular at time of shipment. For example; an importer buying product from China can receive a CIF price from their overseas supplier and presume they have an understanding of landed cost. However, destination charges imposed by the steamship line can run into several hundreds of dollars per container and are to be paid by the importer in most cases. Additionally, logistics providers will charge for services such as document turnover fees, messenger fees, import filing and, customs entry filing fees. This can add as much as $1000 to landed cost and that’s before paying duties that may be charged by the government. In order to obtain a thorough understanding of landed costs exporters should carefully consult with a freight forwarder or logistics services provider prior to starting international business.

• Duties & fees – Customs duties apply all over the world. In some countries they are applied to exports as well as imports. Knowing duty rates is crucial as these charges are non-negotiable and must be paid to local authorities prior to release of goods or within a very short period of time thereafter. Proper classification of goods, correct invoice values and even, invoice formats are required in order for proper duty rates to be applied. For example; the U.S. import duty rates on the general category of “textiles” or “garments” can vary based on country of origin, type of fabric, material used. This can have a significant impact on an importers choice of product and sourcing location. Importers & exporters alike must consult with a customs broker and/or logistics services provider well in the earliest stages of their international business planning in order to get a thorough understanding of duty structures and import formalities that may apply to their business.

•Insurance – Insurance cost is significant. Coverage is necessary in order to prevent a buyer or seller from partial or total loss of goods due to unforeseen damages or theft. Insurance rates can vary based on commodity, mode of transport and country of destination, as well as value of merchandise insured. Parties purchasing insurance should keep in mind that it should not only cover the value of the merchandise, but also the cost of shipping the goods so that these charges do not have to be re-incurred. A general rule of thumb is to insure merchandise for 110% of invoice value so that shipping costs for replacement goods can also be recovered along with the value of the product. Working with an insurance broker is a great way to learn about your options for insuring goods, especially if your company is looking to engage in ongoing international business. Many freight forwarders also sell insurance on a per shipment basis and can provide competitive pricing options for coverage.

These are some of the more significant cost drivers of landed cost. Proper consultation with a logistics services provider can offer a more in depth view of such costs as each country can have significant variations and additional charges that an uninitiated exporter is likely to be unaware of.

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