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.

 

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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.

 

 

 

 

Exporting to Nigeria

Exporting to Nigeria

As part of our ongoing series of reports on the MINT countries, we turn our attention this month to Nigeria.  Along with Mexico, Indonesia and Turkey, Nigeria stands out as an economy offering strong growth rates and an increasingly favorable environment for trade and foreign investment. 

 NigeriaGraphic

Due to the recent updating of economic statistics, Nigeria now claims to have the largest economy in Africa with a GDP of US$504 billion.  What makes this adjustment in statistics significant, for U.S. exporters in particular, is the fact that Nigeria’s oil industry is no longer as dominant a sector of the economy as it once was.  Under old economic data, it was estimated that the oil industry accounted for 33% of the economy, whereas new data suggests that only 14% of the country’s GDP is derived from oil.  As a result, the Nigerian market offers a more diverse set of opportunities to American exporters.   

 

Despite the changes in economic output, Nigeria remains a challenging place to do business and in this report we highlight some of those issues and the impact they may have on U.S. exporters. 

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With a population of 170 million, Nigeria is the most populous nation in Africa.  Its recent growth has been derived from the services and international trade sectors.  Areas that offer strong growth opportunity for U.S. exports include the following:

 

Logistics and Trade Environment

 

Like most countries in Africa, Nigeria lacks good transportation infrastructure.  The impact on U.S. exporters can be observed in many ways:

 

  1. Nigerian airports are generally not well connected to the rest of the world.  Lagos, which is Nigeria’s largest city and commercial hub, is serviced by many foreign airlines, however frequency and number of carriers remains insufficient for the needs of the country.  As a result, U.S. exporters who rely on air freight should expect to incur substantially higher freight costs than they would for delivery to other equidistant export markets. 

 

  1. Nigeria’s ocean ports have long been considered an impediment to Nigeria’s international trade.  As a result, U.S. exporters can expect to incur high costs of container shipping which can have a significant impact on export order profitability.  In recent years, however, the government has committed to investing in new ports, and as a result progress has been made over the past decade.

 

  1. Nigeria relies heavily on trucking, but simultaneously suffers from poor road infrastructure.  As a result trucking and inland delivery costs are high as it can be difficult to reach final destinations that are away from the major cities or ocean ports.  Absence of a properly functioning rail system only compounds the problem as there is no means to achieve economies of scale with respect to ocean container transport inside the country.  Considering the difficulties associated with inland transportation in Nigeria, it is highly advisable for U.S. companies to ship on a door-to-(air)port basis, thereby leaving local customs clearance and delivery arrangements to the actual importer/end user inside Nigeria. 

 

  1. Customs regulations – Nigerian Customs have long been acknowledged as a barrier to trade.     U.S. exporters should take precautions to ensure that information on commercial documents such as commercial invoices, packing lists and bills of lading are accurate and consistent.  Discrepancies can cause Nigerian authorities to delay clearance of cargo upon arrival and can even result in confiscation of merchandise.  As a result exporters can face losses or reduced profitability in their export sales. 

 

Nigerian customs duties can be as high as 30% of CIF value of merchandise and in special cases can even run as high as 100% as is the case with cigarettes for example.  U.S. exporters must be aware of this as it has a significant impact on landed cost of goods and can significantly impact the viability of export sales to Nigeria. 

 

Imports into Nigeria follow a system of prepaid duty collection whereby Nigerian importers are required to electronically file details of their import shipment and prepay customs duties to a bank which in turn will forward the duty to Nigerian customs.  Nigerian importers will receive a Single Goods Declaration which must be shown on shipping documents in order for the cargo to be cleared in Nigeria.  This is significant for U.S. exporters as it is necessary for shipping documents to bear this information in order for a shipment to clear customs upon arrival in Nigeria.  Failure to furnish this information will result is seizure of goods. 

 

Although exporting to Nigeria can be difficult at times due to the logistics requirements and sanctions, it can also be very lucrative for your business. The opportunity to “own a market” currently exists in Nigeria! If you haven’t already, you should make Nigeria a part of your international growth plans.

 

 

Doing Business with Turkey

What You Need to Know about Doing Business with Turkey

Import Exporting Turkey

As we continue our series on the rising economies of the MINT countries, this month’s focus is on Turkey.  Situated at the crossroads of Europe and Asia, Turkey has long been a significant market for international commerce and continues to enjoy the benefits of its location as the trend of globalization continues.  It’s no surprise that Southern Europe, the Middle East and Central Asia are all vital markets that benefit from Turkey’s infrastructure, manufacturing and trade. 

As a NATO member, Turkey offers an environment that is both politically and environmentally friendly to the United States.  In 2013, U.S. exports to Turkey were valued at $12.1 billion while imports stood at $6.7 billion.  The combined two way trade makes Turkey America’s 37th largest trading partner.  U.S. exports to Turkey, aside from agricultural products, consist primarily of Mineral Oil, Iron & Steel, Aircraft, Industrial Machinery, Cotton Yarn and Fabric. 

Despite offering a friendly trade environment, it’s important to know that Turkish customs has very strict and difficult procedures to adhere to.  Shipments have been known to sit in Turkish government facilities for periods as long as a year simply due to discrepancies in documentation.  U.S. exporters should be keenly aware of the requirements their goods are subject to as a lack of compliance can potentially eliminate opportunity to realize profitable sales.  CTAAgricultural and food products are subject to the highest levels of scrutiny as they require importers to obtain a Control Certificate from the Turkish Ministry of Agriculture and Rural Affairs.  Over the years, we have taken on many customers who experienced tremendous difficulties as their logistics providers did not take the time to plan shipments in close coordination with Turkish customs.  To simply rush the goods out the door without planning for customs delays and objections is a recipe for disaster. 

For commercial goods, outside of the agriculture and foods sector, exporters must ensure that their shipments are properly prepared. They must be accompanied by bills of lading, packing lists and commercial invoices.  We cannot stress the importance of accuracy with your invoices.  Turkish Customs can withhold the release of goods for any discrepancies or irregularities in commercial invoices such as misspellings, discrepancies between commercial invoices and packing lists, improper calculations or tallies on invoices, and other such mistakes.  Exporters who are shipping samples of their products to prospective customers should exercise extra caution as “zero value” invoices will almost never be released by Turkish customs.  “Zero Value” invoices essentially list the product being shipped as an invoice of no commercial value, and from the standpoint of the exporter and importer this is factual.  However, Turkish Customs (and in fact many customs agencies around the world) see this as an attempt to circumvent duties and other taxes which can cause product to be impounded and destroyed.  At the very least this can present a disruption to a marketer’s business process, but more importantly the cost of shipping, storage and potential penalties and fines can cause significant financial losses.  A client of ours once tried to ship a powdered beverage mix to Turkey using one of the global courier companies, but without proper advisement on how to prepare the material, found their product (tons of it actually were being sent over for R&D testing purposes) held up by Turkish customs for nearly 6 months without any corrective action being offered to resolve the matter.  We couldn’t help them with the batch of material that got stuck in Turkish customs, but were able to prevent future mishaps by setting up a process that ensured proper customs compliance well before departure of the goods.  

From a transportation and logistics perspective Turkey is developing its infrastructure at a rapid pace.  Recent government funded projects include investments in tunnels connecting the country’s Asian and European cities, expansion of ports, and the national airline is on track to become the world’s largest airline.  As a result, U.S. exporters will find no shortage of transportation options available for delivery of their export sales.

With a projected economic growth rate of 4% per year, and a growing entrepreneurial class, Turkey offers excellent growth potential.  With a population of nearly 75 million, it is also one of the largest countries in the Middle East and hence boasts a very strong domestic market that will continue to be a source of opportunities for U.S. made goods.    

JAPAN – Powering US Exports

Japan – Powering U.S. ExportsJapan export chart

While ample attention has been paid to BRIC countries and a new focus is developing on MINT countries the fact is that Japan has long been one of America’s largest trading partners.  In 2012 U.S. exports to Japan totaled US$116 billion and with a combined 2 way trade volume of $204 billion, Japan stands as America’s 4th largest trading partner as well as the 4th largest market for U.S. exports.

As we had highlighted in this recent post Japan is the 3rd largest market for U.S. medical devices and equipment exports and in fact, according to some estimates may even be the largest market for these U.S. manufactured products.  Not surprisingly then, products classified as “Optical and Medical Instruments” account for the largest amount of U.S. exports to Japan.  Additionally, U.S. exporters will find strong demand in Japan for aircraft and parts thereof, machinery, electrical machinery and meats.  Collectively these five categories account for the majority of U.S. exports to Japan.

While the value of Japan as an export market has been well documented and established for decades, U.S. exporters need to look beyond market size and pay attention to key aspects of the trade process including logistics infra structure and trade practices and the implications of these matters on landed cost.

As a country with significant land and size constraints, as well as a dearth of natural resources, Japan faces very high costs of real estate and raw materials.  As a result costs of warehousing, labor, fuel and other inputs of the logistics process are high.  U.S. exporters should be aware of this, especially when selling goods on a Door-to-Door basis.  While Japan has excellent infrastructure, services such as trucking are very expensive and can have a significant impact on order profitability.

Similarly, with warehousing, Japan lacks the square footage that American companies are used to and this makes itself evident in terms of high storage costs.  U.S. businesses who are required to arrange storage of raw materials or finished goods inside Japan must carefully consider these costs when evaluating the viability of an export sale to this market.

U.S. exporters must also be aware of Japanese customs regulations.  While Japan is a great market with significant potential, it has also been traditionally highly protective of its local industries.  As a result, exporters must ensure proper compliance procedures are being followed not only by themselves but also by buyers, distributors or their subsidiaries in Japan.

In order to maintain compliance with Japanese customs regulations, U.S. exporters must ensure that their customer has secured the necessary import permits from the Director-General Japanese Customs.  Once an import permit has been established, exporters must ensure that all shipments are accompanied by a Commercial Invoice, Bill of Lading or Airway Bill, Certificate of Origin and Packing Lists.

For exporters dealing in goods that are licensed, a copy of such licensing and/or original documentation is required.  Similarly, goods that qualify for duty exemptions or rebates should be accompanied by statements of reduction and any supporting paperwork that may apply to WTO trade, non-WTO trade and the General System of Preferences.  Failure to comply with these requirements can result in goods being detained or even confiscated upon arrival in Japan which can have a severe impact on order profitability and repeat or long term export sales in the country.

Fortunately, Japan has world class transportation infrastructure.  Hence while the cost of doing business may be high, the ability to physically access all major markets exists, and is highly efficient.  Japan’s ports, and in particular Yokohama are amongst the biggest in the world in terms of container shipping volume and offer state of the art handling.  Japanese airports, similarly boast world class handling, and both Tokyo (Narita) and Osaka (Kansai) are amongst the biggest airports in Asia in terms of cargo throughput.

Japan’s market size and spending power, as well as recent government initiatives to boost consumer and public spending will ensure it’s position as a growth market for U.S. exporters for years to come.  With this potential comes a great number of opportunities to meet market need and with nearly four decades of exporting experience to Japan, Crescent Air Freight has consistently ranked amongst the premiere logistics service providers on the U.S. to Japan trade lanes.  We welcome the opportunity to put our considerable experience in Japan to work for your export and import business in this dynamic market.

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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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Container Info & Spec Sheet

 

 

 

 

What Big Data & Little Data Mean To You in the Freight & Logistics Process

What Big Data & Little Data Mean To You in the Freight & Logistics Process:Big Data in Logistics

Possibly the most important business technology issue of the moment is known as “Big Data”, and its ability to transform an organization by allowing employees at all levels of the organization to make better decisions. Simply defined, Big Data is the compilation of such a large set of data points that cannot be defined or analyzed using existing “low tech” tools. For shippers this essentially means that an Excel spreadsheet of shipments in process just isn’t enough anymore to determine how well your logistics process is moving. In a recent paper written by a large logistics consulting firm, it is stated that the sustained success of Internet powerhouses such as Amazon, Google, Facebook, and eBay provides evidence of a fourth production factor in today’s hyper-connected world. Besides resources, labor, and capital, there’s no doubt that the information feeding Big Data and the use of such data has become an essential element of competitive differentiation.

In our July 24, 2014 blog post we addressed the importance of supply chain metrics, and this is precisely what lies at the heart of Big Data. Metrics are established based on past data generated from transactions or shipments and from this data companies can determine how well their supply chain or logistics process is performing. For example, a simple metric like “On Time Delivery” is calculated by measuring the time it takes an order to depart a shipper’s facility and arrive at the customer’s location. The decision about whether the performance is good is based on previous shipments in most cases.

While Big Data is thought to be a senior management issue, the fact is that the data points being studied at the highest levels of an organization originate from the day-to-day operations of the business. Let’s take a look at an example of how Big Data collection begins in the daily workflow of logistics personnel and how they can use it to improve their performance and hence their business.

Wasted Space – a client of ours, one of the country’s largest foods business, had state of the art distribution centers around the country. They needed such infrastructure to support their massive supermarket and big box store retail business. As a result, their international operations were something of an afterthought. Shipping personnel were simply taking cases of product, shrink wrapping them onto a skid and declaring them ready for export.

As we mentioned in our post on dimensional weight, shippers need to be aware not only of the weight of their product but also the dimensions of the cargo being tendered for air transport. As a result, the shipper was tendering cargo of 45 – 100 kgs on skids that had a volume weight of 275 kgs, effectively doubling or tripling the shipment charges.

By doing a simple analysis of the disparity between gross weight and volume weight (Big Data points) we were able to explain to the shipper that the cost of over-packing their material into cardboard boxes was well worth the time and savings in shipping charges. Within a matter of weeks the customer began to realize a reduction of air freight costs in excess of 50%. The Big Data analysis here entailed nothing more than looking at the discrepancy in weights and coming up with an alternative. Logistics managers can perform this sort of analysis in collaboration with their freight forwarders any day and without high level/hi tech solutions being deployed.

There is no doubt that Big Data gets very sophisticated and has the power to really revolutionize a supply chain. It can increase effectiveness exponentially, however, the fact remains that the data often originates at the warehouse level and can be a part of the daily process of logistics professionals at all levels of the organization.

Clearly the time is at hand to tap the potential of Big Data to improve operational efficiency and customer experience, and create useful new business models. It is time for a shift of mindset, a clear strategy and application of the right data analysis techniques. Those companies that do early will enjoy a disproportionate advantage over their competitors.

Container Info & Spec SheetScreen Shot 2014-05-22 at 1.00.30 PM

Port Congestion Surcharges: What it all means from a compliance standpoint.

Screen Shot 2014-05-22 at 12.51.32 PMPort Congestion Surcharges: What it all means from a compliance standpoint.

Due to reasons cited as “labor unrest” at U.S. West Coast ports, ocean carriers have implemented Port Congestion Surcharges for cargo entering and exiting the ports of Long Beach and Los Angeles.  The effects of the slowdown are already being felt by U.S. importers, but in addition to the delays in transit times there is also a cost impact and shippers must be aware of what surcharges they are actually liable for and at what point in time those surcharges could actually apply.  The FMC has provided some insight with this announcement on November 17, 2014: http://www.fmc.gov/congestion-surcharges-11-2014/.  Additionally, we’ve provided this opinion below from our friends at FMC Compliance Services who specialize in tariff filing and compliance issues for shippers, carriers and 3PL’s:

Dear Customers,

As a shipper, please be aware of the fact that the surcharge CANNOT be applied by the Carrier for cargo received PRIOR to the date on which the surcharge became effective.  This means that if cargo was tendered to the carrier at RAILRAMP Dallas, TX (for example) for routing via the port of LONG BEACH, CA and was received at the origin railramp PRIOR to the date on which the U.S. Port Congestion Surcharge became effective, then the surcharge does NOT apply for the account of the cargo.

As a carrier, please be aware of the fact that you may NOT apply the surcharge without first filing it in your freight tariff.  The U.S. Port Congestion Surcharge can be filed either as a general rule (Rule 1.100) or as a note attached to an individual rate filing.  If your company has filed a general rule (Rule 1.100) which will apply to all rates, without requiring mention of the Rule, then the surcharge will automatically be “attached” to each rate as of the effective date of the rule.  In this case, if you do not wish to have the U.S. Port Congestion surcharge applied to a particular rate, you MUST amend the rate to exempt the USPCG.  Conversely, if you have no general USPCG rule, or if your Rule 1.100 requires specific mention of application or exemption within each rate filing, then you MUST annotate each individual rate filing accordingly to indicate whether or not the USPCG is to be applied and if so, at what rate level(s).

I realize that the situation on the West Coast is very frustrating and the application of the surcharge as it applies to your sell rates and filing of same in your freight tariffs only serves to compound the aggravation.  Please do not hesitate to call me if you should have any questions on this subject.

Sincerely,

Laurie Olson

FMC Compliance Services

 

Exporting to Mexico

Exporting to Mexico

MexicoContinuing our series of reports on emerging markets, we now focus our attention on Mexico as the first member of the MINT group of countries whom many believe offer the strongest growth prospects and opportunities for U.S. exporters in the years to come.

Bolstered by the existence of the North American Free Trade Agreement (NAFTA), U.S. exports to Mexico reached $226 billion in 2013 making it the 2nd largest export market for U.S. goods. The leading products exported from the United States to Mexico included electrical machinery, vehicles and plastics. However, significant trade opportunities exist in sectors such as agricultural products, professional services and mineral oils and fuels.

Mexico also serves as an excellent source of imports for U.S. businesses as the country has a very strong and developing industrial base. These capabilities, combined with Mexico’s proximity to the United States have allowed it to become the country’s 3rd biggest supplier in 2013. In this respect Mexico is unique as a country that offers large export sales and import sourcing potential. Only China is similarly positioned as a vital source of two way trade with the United States.

One of the biggest beneficiaries of this two way trade is the country’s logistics and transportation infrastructure. Trucking, in particular, accounts for the largest share of U.S.-Mexico trade and as a result the country offers excellent options for overland shipping to and from the United States. Due to the substantial volume of traffic between both countries, the Mexican market can even provide very creative logistical solutions such as consolidated shipping across various industry segments resulting in a more favorable logistics cost structure.

Despite the well-developed logistics capabilities that Mexico has, there are some parts of the cross-border shipping process which can cause problems for U.S. exporters. For example, when cargo crosses the border by truck, there may be multiple intermediaries (transporters, customs brokers, etc.) who are involved in the clearance and handling of your cargo. As a result, it can be difficult at times to obtain proper tracking & tracing information on cargo entering Mexico. Working with a logistics service provide that not only has the tracking tools in place, but also maintains a system of careful oversight can help mitigate this problem considerably.

An additional source of trouble for U.S. exporters can arise in working with Mexican customs. Mexican customs brokers face significant regulatory compliance standards and the entries they submit are subject to scrutiny long after a shipment has cleared the border. In fact, Mexican customs can request data on shipments going back up to 5 years. This is significant because any mistakes in classification of cargo or improper filing of a customs entry can result in future shipments being held at the border due to past non-compliance. The upside to this is that a high quality, reputable Mexican customs broker is absolutely invaluable and U.S. companies who are required to arrange customs clearance should ensure that they hire the right parties or work with a logistics provider who has collaboration with a strong Mexican broker. Proper attention to this detail will ensure long term success in terms of export sales and profitability in the Mexican market.

Shippers of small lots of cargo will continue to find the Mexican marketplace to be challenging. While large, full truckload (FTL) shipments are easy to coordinate cross border, or even within Mexico, the market for less-than-truckload (LTL) is considerably underdeveloped and as a result service levels are spotty at best. In order to offset some of the risks posed to your freight by this dearth of service options, U.S. companies should consider working with specialists in the Mexican market who often have larger volume and can combine loads into a dedicated full truck. This practice is used by some of the largest companies doing business in Mexico and it allows multiple companies to access the safety and reliability of a full truck while also offsetting the hidden costs of wasted space and underutilized capacity.

Insurance liability is another key attribute of the export process to Mexico that can pose significant challenges. Mexican insurance regulations are extremely favorable to the transporter of goods, and as a result, relying solely on a carrier’s coverage is not likely to offer sufficient protection to a U.S. company in the event of loss or damage of goods. Additionally, collecting insurance compensation within Mexico is not an easy process and is often unsuccessful. Companies who currently have a global insurance coverage in place are advised to utilize it for their trade with Mexico. Smaller companies who may not have a global policy should consult with an insurance broker to make sure that their exports to Mexico are properly covered for loss, theft or damage.

Mexico offers excellent opportunities for U.S. exports and imports due to its proximity to the United States, its strong manufacturing and transportation sectors and a good labor and consumer market. Companies should consider this market as a source of growth opportunity in years to come and prepare for the challenges and rewards that it offers accordingly.

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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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