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.

 

Saudi Arabia – Not Just for Oil

oil fieldsSaudi Arabia – Not Just for Oil

When one thinks of Saudi Arabia and international trade, oil typically comes to mind first, but times are changing. The price of oil has been on the decline over the past couple of years and as such Saudi Arabia has been diversifying its economy. As a result, opportunities exist for exporters.

Saudi Arabia is the 19th largest exporter and the 20th largest import market in the world. Among the top exports is of course, oil, but also plastics, metal goods, construction materials and electrical appliances. In terms of imports, the country’s leading commodities are vehicles, machinery, electronic equipment and pharmaceuticals. U.S. exporters of these products have found Saudi Arabia to be an excellent market for decades.

Trade Lanes

Diversification and Infrastructure

Diversification is important for Saudi Arabia in order to grow its economy and as such government investments in infrastructure and non-oil industries are on the rise. Not surprising, the construction sector is the largest driver of economic activity in Saudi Arabia after oil particularly as government-sponsored projects such as hospitals, specific industry-related economic hubs and infrastructure are driving most of this need.

Indeed, ambitious infrastructure projects are underway with five rail projects to connect not only the major cities within the country but also to serve as a link between the Red Sea and the Persian Gulf as well as with the six other countries of the Gulf Cooperation Council (GCC). This is an interesting development for many reasons, as the Arabia Peninsula is one of the only regions of the world that jumped to modern air and ocean ports infra structure without first developing a rail network. For U.S. exporters, especially those shipping to major inland points such as Riyadh (the nation’s capital), the presence of rail cargo could lower the cost of inland delivery substantially and increase delivery times.

Expansion plans are also underway at airports in Riyadh, Jeddah, Madinah, Nijran, and Tabuk primarily for passengers but will undoubtedly benefit cargo also.

Furthermore, ocean port projects include expansion of the country’s largest port in Jeddah, as well as improvements to ports in Jazan, Al-Madhaya and Fursan. Inland ports are also being built in specific industry-related economic hubs known as Economic Cities.

Along with infrastructure investments, Saudi Arabia has identified several industries for further development such as healthcare, life sciences, automotive, information technology, logistics, alternative energy and manufacturing.

Because of the high volume of imported automobiles and automobile parts, there are particularly high expectations to expand the domestic automobile manufacturing industry. Currently there is local production of light trucks only on a small scale by Isuzu, Daimler, Volvo and MAN. Tata, Jaguar and Land Rover are considering local assembly operations in Saudi Arabia.

In addition, Saudi Arabia is the world’s largest importer of defense equipment and as a result, the government is also working towards developing a manufacturing base for weapons parts and components.

Trade

The Department of Customs at the Ministry of Finance oversees all merchandise moving through Saudi customs ports. In addition, the Saudi Food and Drug Authority (SFDA) are empowered by the Saudi Council of Ministers to have a representative at eight Saudi ports of entry with Saudi Custom officials to regulate and control the entry of medical devices. As such, medical devices are only allowed entry into Saudi Arabia through the three major international airports, two seaports in Jeddah and Dammam, and three land entry points.

On the global front, Saudi Arabia joined the World Trade Organization (WTO) in 2005 and as part of this trade organization is committed to its rules including transparency in trade requirements and more accommodating to non-Saudi businesses. Being a WTO member, Saudi Arabia is expected to bind its tariffs on over three fourths of U.S. exports of industrial goods at an average rate of 3.2%, while tariffs on over 90% of agricultural products are set at 15% or lower.

Additionally, as a member of the Gulf Cooperation Council (GCC), Saudi Arabia applies an external tariff of 5% for most products, with a limited number of GCC-approved country-specific exceptions.

Despite being a member of WTO, Saudi Arabia still favors Saudi businesses. In addition, there are also concerns of counterfeit products. In some consumer goods, for example, it is estimated that as much as 50% of the entire Saudi market is counterfeit. In order to restrict the entry of counterfeit products, the Saudi Customs Authority now requires all imported goods to clearly display the “Country of Origin” or “Made in ….” on items in an irremovable manner.

So, Saudi Arabia is much more than oil. True, oil still remains a leading export commodity but the country is working hard to diversify from its dependence and as such suppliers of numerous industries such as automotive, pharmaceutical, consumer goods and manufacturing should benefit as this country opens its doors further to global trade.

Trade with the largest European Economy – Germany

Trade with the largest European Economy – Germany

germany importsAs one of the largest producers of automobiles, Germany offers great opportunities for U.S. automotive equipment suppliers. It is the largest European economy and the third largest export and import economy in the world. Centrally located in Europe, Germany’s 2014 GDP was $3.8 trillion with real growth rate of 1.6%.

Germany is home to such automobile manufacturers as Adam Opel AG, BMW, Daimler AG and Volkswagen. Besides being a large producer of automobiles, Germany also is the home to chemical conglomerates such as Siemens and BASF as well as to pharmaceutical companies such as Bayer. As a result these particular sectors of the German economy are especially well suited for export as well as for the import of inputs and raw materials from overseas markets such as the United States. For imports, automobiles and vehicle parts are the largest such commodities along with electronics equipment.

Trade lanes

  • Top export destinations from Germany are France, the US, UK, China and the Netherlands.
  • Top import origins into Germany are the Netherlands, China, France, the US and Italy

Infrastructure and Logistics

Germany has a well-defined and mature transportation infrastructure. It is home to Europe’s second largest container port, Hamburg as well as Europe’s largest inland port, Duisburg. In addition, the Rhine and Elbe rivers serve as major thoroughfares for barge traffic.

Its airport network consists of 23 airports that offer international service including Frankfurt which is the 9th largest airport in the world in terms of cargo with 2,132,132 tonnes moved in 2014.

Much of the cargo within the country is transported by truck as opposed to rail. As a result, because of the preference of truck, tolls are utilized. However, there has been an attempt to shift more cargo on rail to reduce emissions and road congestion.

The rail is operated by private operator, Deutsche Bahn, but receives government funding. With 37,900 kilometers of track it is one of the largest networks in the world. In recent years, Deutsche Bahn has been successful in extending its German network to China providing an alternative solution to that of air or ocean for shippers. For U.S. exporters the presence of such a well developed infrastructure means that the entire country is accessible for potential sales and distribution opportunities.

Because Germany is a member of the European Union, it follows European Union trade requirements in addition to its own requirements. The Integrated Tariff of the Community, referred to as TARIC (Tarif Intégré de la Communauté), is designed to show the various rules which apply to specific products being imported into the customs territory of the EU or, in some cases, exported from it. To determine if a license is required for a particular product, check the TARIC.

Some European directives to be mindful of include REACH, “Registration, Evaluation and Authorization and Restriction of Chemicals”, which requires chemicals produced or imported into the EU in volumes above 1 metric ton per year to be registered with a central database handled by the European Chemicals Agency (ECHA). Another directive, Waste Electrical and Electronic Equipment (WEEE), requires U.S. exporters to register relevant products with a national WEEE authority or arrange for this to be done by a local partner.

According to the US’ website www.export.gov , Germany’s regulations and bureaucratic procedures can be a difficult hurdle for companies wishing to enter the market. Complex safety standards complicate access to the market for many U.S. products. It is advised that U.S. suppliers do their homework thoroughly and make sure they know precisely which standards apply to their product and that they obtain timely testing and certification.

Goods imported into Germany from non-EU states are subject to an import turnover tax. The import turnover tax rate equals the value-added tax rates of 19% levied on domestic products and has to be paid to the customs authority.

A mature market, Germany continues to offer great opportunity for exporters particularly in automotive, chemical and pharmaceutical manufacturing. Be mindful of the intricacies associated with customs and duties within Europe and to Germany; otherwise enjoy the benefits this country has to offer.

The Top 7 Markets for U.S. Medical Equipment Exports

The Top 7 Markets for U.S. Medical Equipment Exportsmedical bed

The category defined as Medical Devices or Medical Equipment is a broad one.  The U.S. Department of Commerce assigns 5 NAICS codes to this market, and digging into the specifics of each classification reveals several sub sectors and categories.  According to 2012 estimates, the United States market size for medical devices and equipment stands at $110 billion, and U.S. exports of such products were valued in excess of $44 billion.  The United States enjoys a tremendous advantage in this industry over other nations largely due to its advanced R&D capabilities in both the public and private sectors.  Based on data from the United States Bureau of Census covering several NAICS codes, here are the top seven export markets for U.S. manufactured medical devices and equipment for 2014:

7. China – 2014 Medical Devices & Equipment Exports – US$1,520,069.00

It’s rare that China is not at the very top of a list of export or import markets, especially where it comes to trade with the United States.  Nonetheless, with a burgeoning population, China’s potential as a market for U.S. made medical devices and equipment will remain strong for years to come.  The sub sector of “Surgical and Medical Instruments” stands out as the largest category of U.S. exports to China at $762,943,000 in 2014.

6. Germany – 2014 Medical Devices & Equipment Exports – US$2,267,567.00

Europe’s largest economy offers exporters of Medical Devices and Equipment a strong, stable environment for international sales.  While the current strength of the U.S. Dollar against the Euro may pose some short term challenges, higher value products from the United States will continue to enjoy demand and a trade friendly environment in Germany well into the future.

5. Mexico – 2014 Medical Devices & Equipment Exports – US$2,281,228.00

As we highlighted in a recent post, Mexico is a great trading partner for the U.S. as it serves as a source of two way trade.  Surgical equipment, appliances and supplies accounted for nearly 55% of U.S. medical equipment exports to Mexico in 2014.

4. Belgium – 2014 Medical Devices & Equipment Exports – US$3,405,914.00

One of 3 European markets on this list, Belgium has long been a standout market for U.S. made medical equipment.  Surgical instruments, appliances and supplies alone represent an annual export opportunity of $3.3 billion for U.S. companies.

3. Japan – 2014 Medical Devices & Equipment Exports – US$3,560,670.00

Japan ranks as the fourth largest market for U.S. exports as we detailed in a recent post here on the Exporting Excellence™ blog.  According to some measurements, it may even be the biggest export market for U.S. made medical devices.  As home to an aging population and a culture uniquely devoted to caring for its elderly, Japan will continue to be a source of export growth for U.S. manufacturers of medical devices and equipment for years to come.

2. Canada – 2014 Medical Devices & Equipment Exports – US$3,564,214.00

America’s largest export market overall stands to see a similar standing across specific industry segments as well.  Canada offers U.S. medical equipment manufacturers a diverse market, as no specific subgroup of medical devices and equipment accounts for more than 39% of the aggregate exports of this commodity.

1.The Netherlands – 2014 Medical Devices & Equipment Exports – US$3,929,604.00

Despite a strong presence in the global pharmaceuticals marketplace, The Netherlands looks abroad for its medical equipment and device needs and the U.S. has been the primary beneficiary of this search.  As with all European markets, an aging population has a strong impact on domestic demand for healthcare related products.  As we mentioned with Germany, current strength of the U.S. dollar may cause a short term decrease in sales opportunities, however medical goods tend to be better protected from such market events due to necessities.  U.S. exporters would be well served by focusing on this market as part of their future international sales strategy.

There are several other major markets that didn’t make the top seven list here based on specialization.  For example, the category described as Opthalmic Goods enjoys strong demand in Australia, France and the United Kingdom.  Similarly, “Dental Lab Products” enjoy strong demand and growth in Italy and Spain.  Newer or smaller volume exporters should consider developing sales in Saudi Arabia, Singapore and Switzerland all of which offer strong demand for all categories of U.S. medical devices and equipment, but do not have the scale that comes with the top seven markets in this list.

Irrespective of the market or category, a capable logistics service provider is required to facilitate the shipment and overseas delivery of goods such as medical devices and equipment.  From domestic compliance to international customs clearance, Crescent Air Freight offers the depth of expertise and skill to meet the demands of exporters while maintaining focus on reducing the hidden costs and inefficiencies that can come with the process.  We look forward to assisting your business in its international expansion today and for the long haul.

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Top 10 Markets for U.S. Exports

Top 10 Markets for U.S. ExportsScreen Shot 2014-05-22 at 12.51.06 PM

At the Exporting Excellence™ blog, we’re all about international trade.  International trade does more to create jobs, promote cultural ties, create an interchange of ideas, transfer technology and promote understanding throughout the world than any other means of diplomacy, foreign aid, statecraft, etc.  Most of all, international trade is a great enabler of economic growth and wealth creation for all countries of the world.  While we have posted content about specific markets on this blog, we’d also like to introduce a series of lists that outline the best markets for U.S. exports in general and by specific industry.

The proof is overwhelming: export sales can grow your business far more than local sales.  After all, why limit yourself to your zip code when you can literally sell to the world.  Here then, is a look at the top 10 markets for U.S. exports:

# 1 – Canada.  Value of U.S. exports purchased in 2013: US$301.6  billion. Exporters of automobiles, trucks and accessories thereof take note: Canadians love large and midsized cars and trucks made in the USA.

#2 – Mexico.  Value of U.S. exports purchased in 2013: US$226.1 billion.  America’s neighbor to the south is well situated to engage in two-way trade with all NAFTA countries as we detailed in a recent blog post.  U.S. exporters of industrial machinery, agricultural products and dairy products will find a great deal of opportunity in Mexico.

# 3 – China.  Value of U.S. exports purchased in 2013: US$121.7 billion.  See, it’s not a one way street!  While China does supply an enormous amount of manufactured goods to the United States, American companies exporting agricultural products and hi-tech equipment are going to see growth in China for years to come.

# 4- Japan.  Value of U.S. exports purchased in 2013: US$65.2 billion.  Japan has a diverse consumer market as demonstrated by the fact that U.S. exports of medical instruments, aircraft equipment and industrial machinery are in high demand.  Japan, like China, is a good market for U.S. technological goods and services.

#5 – United Kingdom.  Value of U.S. exports purchased in 2013: US$56 billion.  See how trade works?  Not only political allies, but also major trading partners, the U.S.-U.K. relationship remains one of the closest in the world on so many levels.  U.S. exports of agricultural products as well as foods continue to enjoy growth in the U.K. despite the economic turbulence of recent years.

# 6 – Germany.  Value of U.S. exports purchased in 2013: US$44.2 billion.  Technological goods, pharmaceuticals and medical equipment from the United States are in high demand in Germany.  It is the strongest of Europe’s economies and should be a key part of your Europe export strategy.

#7 – Brazil.  Value of U.S. exports purchased in 2014: US$44.1 billion.  We profiled Brazil in a recent blog post as it offers great potential for U.S. exports.  Machinery and aircraft equipment account for the lion’s share of Brazilian imports from the U.S.  Tourism also remains a growth sector with substantial interest from U.S. tourists and investors.

# 8 – The Netherlands.  Value of U.S. exports purchased in 2013: US$42.6 billion.  U.S. exporters in the fields of “Clean Tech”, medical equipment, and biotechnology will find The Netherlands to be an attractive market with strong growth potential.

# 9 – South Korea.  Value of U.S. exports purchased in 2013: US$41.7 billion.  Along with Canada and Mexico (NAFTA), South Korea is one of the few countries that shares a Free Trade Agreement with the United States.  Opportunities abound for companies exporting aircraft related equipment and for providers of research and development services and technology.

# 10 – France.  Value of U.S. exports purchased in 2013: US$31.8 billion.  Known for their rich artistic tradition, ironically, French imports of U.S. artwork exceed $200 million annually.  Industrial goods such as specialty chemicals and high technology equipment from the United States enjoy strong demand in France as well.

Sources for this list include the U.S. Commerce Department which publishes superb trade data available at no cost to U.S. businesses. 

Additional country data was obtained from the U.S. Bureau of Census, and Inc. Magazine.

Hurricane Katrina Stopped Gulf Fish Deliveries: Could Your Business Survive Such a Disaster?

Hurricane Katrina Stopped Gulf Fish Deliveries: Could Your Business Survive Such a Disaster?Hurricane Katrina and it's impact on Supply Chains at the time

Many of us responsible for the smooth functioning of our company’s supply chain view
risks mostly as they relate to shipments in progress. However, the risks to our supply chains and logistics functions can take many forms. Many are beyond our control such as interruptions created by weather, natural disasters, political unrest and labor problems.

Others risks, however, are more directly related to the business cycle, and though less frequent, they too are significant. These include unexpected increases in demand, economic crisis or business failure of one or more market participants or suppliers.

How to Plan for Supply Chain Risk

Planning during or just before an interruption occurs is often a futile exercise. Effective planning takes place before interruptions occur, and is a specific and analytical process that creates protocols which prepare your company for all types of disruptions.

Include the Best People in The Planning Process

When exploring risks to the supply chain, and the appropriate responses, make sure to include your most relevant personnel in the process. This means involving not only senior executives but also capable operational staff as well. Senior management has a strategic overview but may not have operational insights that are relevant to the daily operations of the business. Those responsible for day-to-day operations have their finger on your company’s pulse and are the stakeholders within your organization most directly impacted by work disruptions. Consider warehouse managers, customer service managers, manufacturing shift leaders and the like as their views help bridge the chasm between theoretical planning for disasters and the real tasks the company faces in working around the problems that disasters create.

Assess Risk & Prepare a Process

Preparation is the key to withstanding the pressures imposed by a supply chain disruption. The first step in being prepared is to establish a periodic review process that examines a company’s supply chain in depth and identifies potential weaknesses and threats. Think of this as a SWOT analysis for your supply chain.

Key items to consider include assessment of raw materials and inputs that are needed for production, identification of key suppliers and vendors and – from a logistics perspective – ports/airports of origin and destination.

The importance of a specific, analytical and detailed overview is critical at this stage of your planning. Here is an example of why –

In normal times sales and profitability data show that a customer in Japan places large, high yielding but sporadic orders for your product. This type of customer draws the attention of personnel at various levels of the organization and is likely to have high priority even in a supply chain disruption review process. However, easily overlooked in the planning process is a smaller, perhaps less profitable but frequent customer in Hong Kong. In the event of a supply chain disruption it would be prudent to have plans to continue support for the smaller customer from Hong Kong. While the Japanese customer is of greater value in normal times, it is the smaller customer in Hong Kong who relies on your product on a regular basis, and also one who orders (and hence pays) with greater frequency. Being prepared to continue supplying such a customer will likely avoid hidden costs of disruptions such as decreased cash flow while also ensuring an enduring relationship with a regular customer.

Develop Alternative Service Providers

On time delivery is critical to those you supply and worth the premium your company pays for direct delivery services. Nevertheless, there is a need for developing relationships with 2nd and 3rd tier service providers who can offer alternative transit choices.

Assume that your company receives an important raw material from an overseas supplier. The cargo is normally imported by ocean through the port of Long Beach, California. However, due to an earthquake traffic to the port has been disrupted. An advance plan for this scenario would include an ocean rate contract that includes service to the ports of Oakland and Tacoma. Typically the same vessel calls on all three ports and for very little price difference, hence most steamship lines will often readily add these ports to a service contract. Furthermore, adding these destination ports into your contracts with a steamship line during normal conditions can save your company from the additional costs likely to be imposed by negotiating during an emergency when demand at nearby ports is likely to surge. Use of alternate ports may increase the cost of domestic transport to your factories and distribution centers; however, keeping your brand on the shelf and in the consumer’s eye is well worth it.

Collaborate With Your Freight Forwarders and Other Third Party Logistic Providers

If you do not include these groups in your planning process you are increasing the risk of your plan’s failure. While your plan may call for a freight forwarder to warehouse extra finished goods inventory in advance of a supplier’s strike, failure to include them in the planning process, and failure to update them on the likelihood of the strike will most likely cause the plan to fail as the freight forwarder would be in a reactive position without a complementary plan in place to support your company’s emergency plan.

One good solution is to form a crisis management task force that includes all the stakeholders in the supply chain. Since disruptions sometimes develop a life of their own, activate the task force members directly involved in any situation and keep others informed. If disruptions spread, other members join without the need for playing catchup.

Involving business partners in your planning works well. Under certain circumstances logistics service providers can allow for shared access to raw material and inventory systems providing all stakeholders with simultaneous updates on the flow of goods and materials.

This process is gaining popularity in the supply chain industry and is often called the “control tower” approach to managing the supply chain. Cloud computing has allowed smaller service providers the same abilities that were once the domain solely of global service providers and hence allows even small logistics providers to play a vital and leading role in a large supply chain.

Large Company Advantage

Companies having several layers of suppliers and transporters and sub-contractors are fortunate. They can work with them to develop advanced predictive models that may even have statistical foundations. The statistical models serve the same function as flight simulators for pilots and show how a number of events impact the supply chain and company operations and how well decisions from the crisis management team work to lessen or eliminate incident impact.

The task of preparing the supply chain for disruption is doable and critical to your company’s success. It is important to keep in mind that while you are far from a port that is earthquake prone, for example, your suppliers may use it to get products to you. Carefully analyze every step of your supply chain, identify weaknesses and ways to overcome them. Check your emergency plans annually and partner in this effort with your logistics vendors.

 

 

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

Screen Shot 2014-05-22 at 1.00.30 PM

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.

 

 

Exporting to Russia

Exporting to Russia

EU-27_exports_to_Russia,_2010

In our series on emerging markets, Crescent Air Freight has focused on the significant growth potential of Brazil, India, China and the Middle East. Collectively, these markets are the most prominent “hotspots” for U.S. importers and exporters as ranked by several different market surveys and research sources. This month’s focus is on Russia. Russia’s acceptance into the WTO in 2012 has made it a more attractive market for consumer goods that will continue to grow for U.S. exporters in years to come.

Russia has positioned itself well in terms of logistics and transportation infrastructure and continues to invest heavily in these sectors. As a result U.S. exporters will find Russia to be one of the easier markets to work with in terms of inland distribution and delivery. Some service areas are still in need of improvement, for example, small packages and B2C deliveries continue to have challenges with cash on delivery terms (COD) meaning it may not be easy for companies to simply send a package of merchandise to their final customers. In this way logistics companies can add great value by offering consolidation services and local customs clearance and deliveries of large lot shipments which can then be distributed locally.

Russian customs is embarking on a program of electronic document transmission, which is designed to expedite customs clearance and can make the customs entry process much simpler in years to come, especially for air cargo shipments. This development promises to reduce shipment-processing costs that will have a direct impact on landed cost and increased order profitability.

Russia’s rail network has long been a source of pride within the country and the government is currently investing heavily in developing its Trans-Siberian Rail Line. As a result, exporters shipping cargo in ocean containers will find greater access to farther regions of the country. This development offers opportunities for U.S. exporters to improve their sales by reaching a larger customer base in a more economical manner.

Russia’s import requirements include the following:

  1. Commercial Contracts between exporter and local importer must be provided to Russian customs at time of import. Distributorship agreements, for example, substantiate a local companies ability to import goods from overseas.
  2. Commercial Invoices and Packing Lists. These must be checked for consistency and errors to ensure goods are not held due to discrepancies.
  3. Transport Documents such as airway bills or ocean bills of lading are required and must be consistent and free of errors or discrepancies.
  4. Certificates of Origin are often required and can be prepared by most logistics service providers.
  5. Certificates of Conformity may be required and must be prepared by a manufacturer or exporter of merchandise.
  6. Sanitary Certificates, if applicable, are relevant to exports of food products and agricultural goods.

Transporting goods to Russia, however does come with its share of challenges. As we have mentioned in previous posts even minor discrepancies such as a weight difference between shipping and commercial documents can cause Russian customs to place an import shipment on hold. It’s rare for this type of problem to arise in the United States when importing from overseas and hence companies who trade with markets like Russia could easily find themselves with goods stuck or even seized at a destination causing significant cost overages or even loss of product and export sales.

In 2013, the United States imported $26 billion worth of products, mostly petroleum and industrial goods from Russia, while it recorded exports to Russia of $11 billion. As we have shown throughout our Emerging Markets Series, having a relationship with the right Logistics Service Provider can help increase revenues by introducing you into these markets of opportunity. Will Russia be on your import/export list for 2014/2015?