Small Is the New Big

“There has been an awakening.  Have you felt it?” says Supreme Leader Snoke in “Star Wars Episode VII The Force Awakens”.  He was referring to something entirely different from what I’m getting at, but there is some kind of change going on in the business world.  It’s more than a trend or fad.  The fact is that all things “small” are not just “cool”, but actually in high demand and perceived to be of higher value than “big”.  This is not exactly breaking news though.  We’ve seen small scale burger production from Shake Shack do things for fast food that McDonald’s and Burger King simply can’t adapt to.  Not an hour of the day goes by when someone doesn’t come up with another take on Uber and its disruptive effect on the market for everything from taxis to messenger services – a concept that is built entirely on the fragmented and somewhat diminutive (pardon the pun) chassis of good old fashioned cab drivers.  For 36 years Tom’s of Maine was a small stand alone brand that fought major consumer goods conglomerates until it was finally bought by Colgate-Palmolive in 2006 (more on that in a future post) & more recently another TOM(S) has emerged as a small “do-gooder” brand that is scaling up its fashion business by selling comfortable shoes and simultaneously donating pairs to children in need.  AirBnB is rocking the hotel industry by parlaying small, fragmented accommodations into what will amount to the world’s largest hotel business.  And there are a lot more examples popping up by the hour.  There are 2 things about this trend that I find really interesting:

  1. Unlike the old days when a company like Ben & Jerry’s was more of an anomaly or a fluke, today a clear cut market preference has emerged to do things the “small way” or in “artisanal” fashion without accepting the trade offs that can come from limited infrastructure.  
  2. The power of small business (or even the “soloprenuer”) is being harnessed in an unprecedented fashion to achieve what used to require large scale capital expenditure and investment.   

So about this catalyst – well, we know what it is: technology.  More specifically, it’s the internet and if you wanted to rephrase things a little bit you could attribute the phenomenon to widespread, inexpensive communication.  But here’s the thing – technology is doing what it’s always done.  Combustion engines, automatic transmissions, digital calculators, commercial aircraft and other such inventions deemed “routine” today were the leading edge high tech inventions of their time.  That is, technology is enabling better, faster, higher productivity at a continuously decreasing cost.  

The other phenomenon, and the one that I really am intrigued & impressed by is the rise of small business enabled by the internet and how this preference is almost inherent to the human condition or the business condition.  It’s almost as if the whole world was waiting for the chance to root for small business or work with small business or incorporate small business into their supply chains and that moment appears to have arrived.

What’s behind this rise in small business interest?  Are we at heart a society of secret owner operators?  Is there some greater myth that inspires us? Or do we believe that small businesses somehow “do it better”?  

The answer may just be: all of the above.  But more realistically, I think it boils down to service and process.  That sounds incredibly unexciting doesn’t it?  I am a huge believer in the power of myth and its connection to all things in the world (including data, revenue, business cycles, and other “quant” stuff) so I’d like to tell you that our fascination with small business lies in some myth centered around a Skywalker-esque hero perhaps.  However, the reality is that small businesses just “get” service better than anyone.  So, why not break up every conglomerate or large business and offer the world a “service utopia”?  Well, here’s the catch with service: it’s not easily scaleable.  You can empower managers to make decisions, reward employees for great customer service, and give training seminars all day long, but you cannot truly scale service.  Here’s the paradox then – if a large business runs itself like a small business, it will collapse under the weight of it’s own transaction volume.  This is frequently referred to as micro-managing.  Meanwhile, if a small business tries to run itself like a bigger business it will either collapse under the weight of the overhead that such a structure requires, or, more likely (and especially relevant for the purposes of this blog post), it would never be able to satisfy any of its customers in terms of price or service offerings.  

Fortunately, there is a middle ground.  There is a magical intersection of the scale curve and the service curve that can yield a superior customer service experience which doesn’t force customers to overpay nor sacrifice quality in favor of price.  It’s a relatively new dynamic and one that is going to proliferate over the years to come and it is a direct result of internet technology being applied to business processes coupled with the desire to be small and focused.  I like to think of it as the rise of the business platform.  

Platforms, hamburgers & scale

To understand platforms and what they can do for the B2B and B2C markets in the future, let’s look back at the age old concept of franchising.  There’s no need to repeat the whole Ray Kroc and McDonald’s story, instead just ask yourself this: “when was the last time I saw a chef at McDonald’s?”.  All those billions of burgers sold every year, and no chef in site!?  The reason is that McDonald’s has built the franchise concept to perfection and made it into a small business platform.  Each burger is pre-made to a precise size.  Each french fry is cut to a precise width.  The fryer that cooks them chimes when the fries are done and even builds in time to account for the delay between its chiming and the time the attendant actually pulls the fries out of the oil, etc.  All of this is done for one reason: to give customers one great, Fast foodstandardized product over and over again.  That’s the kind of undertaking a big business with ample resources is uniquely equipped to deliver.  But who makes it work?  For all of the R&D that goes on at McDonald’s headquarters, and for all the billions that the parent company spends on marketing, advertising, corporate structure, etc. the fact remains that it’s the franchisees who make the stores work on a daily basis.  They are the ones who face the customers, ensure the lights are on, the floors are cleaned and make sure that the front facing, retail end of the experience is so good that customers will want to come back over and over again.  Can McDonald’s survive without its franchisees?  Absolutely not.  But, let’s think about how many franchisees earn their livings or have amassed considerable wealth thanks to McDonald’s.  Could they have done it without McDonald’s by building burger outlets of their own?  Maybe a handful would have succeeded over time, but the vast majority would never even successfully run one store without the support of the McDonald’s platform.  

Now this is where things start to get interesting.  In theory, we should all just save money or maybe get a loan from a franchise finance company and open up a McDonald’s or Wendy’s or Subway, and start our entrepreneurial journey this way.  The ambitious ones can scale up to multiple outlets and those who want to use it as a “lifestyle business” (a term I don’t especially like, but it does fit here) can simply own one or two, pay off the bank, make a good salary and exit the business when the time comes to retire.  But that’s not feasible.  The list of reasons is long, but let’s just accept the fact that not all of us want to own a franchise restaurant for a career or even as an investment.  So, what do we do?  Well, that’s a conversation for some other time, but let’s speed things along and say you’ve decided to start a business that isn’t a franchise, and that you’re using your own money for now (with some plans to raise money in the future perhaps) and so conserving capital is key for you, but at the same time you need to access opportunities and infrastructure that you don’t necessarily have the money for. Here’s a look at your “McDonald’s” – the platform that now enables small businesses to compete against the big ones and deliver the service day in & day out.

Flip the funnel

Technology has flipped the dynamics of customer aggregation.  Time was, a business needed to build the revenue to drive the profits which were then reinvested into infrastructure to support more customers, who would then provide more revenue to drive more profits to build more….etc. and so went the cycle.  Now, thanks to technology the equation looks considerably different: the moment a small business goes live with their website they effectively become global.  Think about that: the neighborhood exterminator’s website can be accessed by a web user in Singapore, Moscow or any other location on earth.  So now you have an audience, or at least access to an audience. If you used a service like Wix or WordPress you actually established this web presence for free or for no more than the cost of buying a domain ($2.99 in some cases on GoDaddy).  (It actually cost me $60,000 to launch one of the first freight e-commerce websites in the industry back in 2001.  Wish I had my money back!).

Now that your small business has an audience, you need to have a way to be contacted.  You might start with free contact tools like email, but let’s say you still want a phone number and phone system (startup founders may roll their eyes at this, but trust me, a lot of small businesses – including ones looking to scale – still need phones and phone systems) you could opt for any number of VoIP systems.  These are great tools, and I personally had such a system from Broadview Networks that literally saved my business in the aftermath of Hurricane Sandy in October 2012.  So now, for no money upfront, and a very low monthly cost, you could have a communications platform in place that rivals what your larger Fortune 500 competitor has.  Pretty cool!  

With a web presence and the infrastructure to actually talk to clients in place, you’re ready to put these tools to use.  Somewhere above, I neglected to mention that you’ll need high speed internet, but if you’re home based you already have this and if you have an office or store you can get it for $85 per month or less.  And if you’re neither (i.e. you work off a WiFi connection at the nearby Starbucks) there are still a lot of free or low cost options available to you.  

So now you’re online and reachable by phone or email.  Let’s get some traffic coming to that website.  The easiest place to begin, for free, is with social media.  Yes, these are platforms.  How you choose to use them is up to you but for business purposes you can use LinkedIn, Facebook or YouTube (amongst many, many other options) to get the word out about your business.  Launch a series of YouTube videos on how to tie a bow tie (because you sell the widest selection of bow ties in the tri-state area).  Create a LinkedIn group on the value of ongoing truck maintenance.  Create Instagram and Pinterest pages/boards to promote your line of coffee mugs.  In the old days, small business owners like me would spend $300 or more per year on a listing in the Yellow Pages.  That was small business marketing and all it got you was exposure to people in your zip code or county.  For far less money, in fact often for no money at all, social media gets your marketing message out to a limitless audience.  Once again, behold the power of the platform.  You used to need Procter & Gamble money to reach a global audience.  Now you don’t.  Even better, P&G knows it and they feel you coming.  

Infrastructure secured, marketing messaging en route to the world, you’re off to a good start and you haven’t had to flip a single burger.  So far you are feeling good about not becoming a McDonald’s franchisee. The marketing channel is clicking.  Phone calls are routing from your desk to your cell phone thanks to your VoIP system and now you find that you need a little support.  Maybe you want someone to update the social media channels while you fill orders.  Or perhaps you’re not filing all of your receipts or updating the checkbook on time.  You can only dream of your first full time hire, but in the mean time there is help. Tim Ferriss 4 hour work week Virtual Assistants, popularized by Tim Ferriss in his book “The 4-Hour Workweek” have become crucial providers of support for startups in recent years.  VA’s (as they are often known) can work on almost any task, can cost as little as $10 per hour, work remotely (no office space required), work offshore (24 hour work potential), and sit on somebody else’s books (no unemployment withholdings, payroll taxes or medical insurance costs to drive overhead).  Strictly speaking, VA’s are just service businesses rather than platforms, but consider how you got your VA!  Sites like Upwork or Fiverr deliver customers, billing and payment solutions to a global army of assistants, contractors, designers, consultants, etc.  That’s a platform at work for sole operators, freelancers and small businesses.  

Manufacturers and distributors drop ship, courier companies like UPS take care of deliveries and any number of freemium or low cost software packages such as Marketo and QuickBooks allow you to keep track of it all.  Just like that, you now have a fulfillment function and a list of vendors to support your business.  The freemium, SaaS and contract service providers are key here.  You can access their services for free, and only as needed.  That’s almost like a credit line: do business now, pay later and that too for only the business you actually secure.  People who launched businesses as recently as 2000 have to be jealous.  

Now maybe you’re ready to spend some real money.  Remember how we boiled the cycle down to revenues to profits to reinvestment in order to get more revenues?  Perhaps now maybe you’re ready to reinvest in advertising or infrastructure.  For the moment let’s look at advertising.  

The theme here is platforms, remember.  McDonald’s takes a cut of franchisee revenues for advertising expenses but theirs is a closed system: the only beneficiary of their ad platform is themselves and their franchisees – so while they take a big cut, they deliver value exclusively to their business.  You and I don’t have that luxury, but thankfully we have access to a vastly larger platform for delivering advertising.  The grand daddy of that space is Google and their incredible Adwords platform. Yes, it is a platform.  Google gives you the tools to find keywords relevant to your business.  They give you analytics to see the real time results of your advertising spend, they disseminate those ads across several internet properties, etc.  The famous retailer Marshall Field mused about not knowing which 50% of his advertising budget was wasted.  Thanks to Google, we actually know what’s working and what’s not, without any wastage at all.  They even give you free Adwords vouchers so that you can get $150 of free advertising on their platform.  Similar paid advertising platforms exist on Bing, Yahoo, Facebook and LinkedIn amongst others.  

So where do you suppose this is all headed?  We know about barriers to entry and that as they get lower, more participants get in on the action and drive down the value of the business opportunity until it becomes commoditized, at which point consolidation happens.  Well, in some ways the commoditization of platforms is happening already.  Adwords are not expensive, but the conversion rates are low relative to other forms of marketing.  AliBaba storefronts are generally discounted to 10% of list price (whether this is a marketing tactic or not, the fact that you can be on a massive platform for less than $500 per year is really cheap).  Facebook ads were cheap, now they’re not, but someday they will be again.  The same is true for LinkedIn and other platforms, all of which are economical and allow you to set a spending limit so that you’re never “burning” advertising dollars.  

Now if we’re reaching a point of commoditization, then I believe the future belongs to value added platforms and niche platforms.  You see, digital business is still…business.  While there may be disruption and a re-ordering of hierarchies, some of it is going to feel a bit like shuffling deck chairs on the Titanic.  Brick and mortar trends will simply turn into digital trends.  So, as platforms grow and become the norm, the winning platforms will be those who find ways to do more than drive down price. The winners in the world of digital business will be the ones who help add value to the businesses of their customers by increasing access to markets and opportunities.  For small businesses this focus will have to be on niche markets, products and services.  

Let’s look at some popular B2B platforms and understand what they might mean for your business.  If you’re in the business of international trade, and sourcing from China is part of your plans, then AliBaba is the best game in town.  By allowing Chinese manufacturers to gain access to overseas sales, AliBaba is providing the platform to be a primary or supplementary sales channel.  Additionally, their investments in logistics, credit services (trade finance), inspection services and various other support services in the export process enable their platform to add tremendous value to their clients businesses.  I actually feel the same way about the Amazon Marketplace.  While all the attention these days is focused on Amazon’s growth in sales, the thing that many people overlook is the company’s fulfillment services and the marketing channel it offers via its Marketplace.  This is a sensational service that really smart phone appsallows a business owner to just focus on product and sales.  Amazon and suppliers can provide the turnkey services of drop shipping, order fulfillment, and final delivery.  I also think one of the hidden marketing gems of Amazon is it’s list of “Top 100 Products on Amazon” and the data it publishes on top sellers in each category.  This is akin to an app maker landing on the Apple app store Top Free Apps list. It really has the potential to keep sales growth going in a manner that very few businesses can do on their own.  

A smaller platform that was successful in recent years, and one that has had a significant impact on my vision for CoLoadX is OpenTable.  While most consumers knew it as a business that drove reservations (transactions) to restaurants, very few people were aware of the fact that OpenTable software literally ran the front end of the restaurant.  This represented a significant value add for its customers and allowed them to remain ahead of their competition.  At CoLoadX we’re taking a similar approach by not only providing a marketplace for freight forwarders and NVOCC’s, but also by delivering technological solutions that actually help our clients run their businesses better.  As a result, we offer a sales channel, a dynamic procurement tool, a marketing capability currently not available in house, and eventually a completely streamlined and re-defined approach to logistics that fits with the trade dynamics of the 21st century.  This is a platform that’s about much more than shopping for rates and driving down prices.

coloadx cta

Small Business Turns the Tables

If you’ve had the good fortune of working for Altria, Coca-Cola, Pepsico or Procter & Gamble and companies of this caliber then you’ve been part of the finest marketing organizations the world has ever known.  A few years spent with them will provide you with more marketing knowledge and insight than most MBA programs ever can.  Their resources are virtually unmatched, their product mixes can withstand market segmentation down to very minute levels (looking for natural sugar soda at a Caribbean grocery store in Richmond Hill, NY?  Pepsi has you covered!) and their supply chains guarantee they’ll always have the lowest cost of inputs and raw materials.  

And now…your small business is making them sweat bullets!  The small enterprise actually stands a chance.  Homemade soda from  Brooklyn can get the same level of attention as Coca-Cola.  The very size that has given big business its advantage over small business is now becoming it’s hold back.  As the internet levels the playing field in terms of access to customers and business infrastructure, the company who loses the most is the one with the largest structure, biggest payroll, most amount of office space, etc.  That is not your small business!  

Now if a restaurant software platform and an ocean freight logistics platform represent a value added approach beyond buying, selling and driving down prices, what might a niche platform look like?  Well this is where I think technology will enable the development of small, closed platforms that benefit sole entities.  Think back to the McDonald’s marketing budget example here: franchisees pay a piece of revenue for marketing and advertising support but wind up being the sole beneficiaries of that expenditure.  

Screen Shot 2016-04-10 at 7.55.27 PMSimilarly, small businesses will have the ability to make larger investments in digital platforms that are meant for the sole benefit of themselves and their customers.  Depending upon the size of the undertaking, this may require substantial investment from outside sources, or may be achieved by allocating funds saved through the digitization of other business processes (do you really need to pay someone $40,000 annually to simply “keep track” of office supplies in this day and age!?).  However the platform is financed, the key to remember is that the benefits accrue solely to your business in the form of improved customer service, higher value add to clients, and ultimately sales and profit growth.  

Imagine you are a customs broker specializing in the fashion industry. Finding a cheap trucking rate from the airport to the downtown showroom is not how you’re adding value to your customers business. You’re adding value with your knowledge of import regulations, and the ability to facilitate clearance through various government agencies (Customs, health bodies, environmental agencies, etc.).  The other value you’re adding is in centralizing the process and making it turnkey, and hence easy, for your client to do business.  (Trust me, “easy” is one of the biggest value add features you can ever give someone).  Why not build a platform that centralizes all the flow of information related to such work AND attracts customers in need of such service in one step?  Once you’ve created a solution like this, the sales and marketing becomes easy.  Customers will pay for your knowledge and expertise if you make it easier for them to work with you.  AliBaba and Amazon are going to fulfill orders but they are not going to stand in line at the nearest Fish and Wildlife Service office with a stack of documents in need of stamping.  This is where your business gets to preserve its lead in the very specialized market you’ve been servicing for decades or more.  

I have the privilege of running the best air freight business in America at Crescent Air Freight and these are exactly the types of initiatives we’re working on for our clients.  In verticals such as automotive accessories and parts, chemicals, medical equipment and petroleum industry products we’re working on platforms that will allow our customers to gain much more than transportation services as they interact with us.  We’re actually going to enable market opportunities for our clients that they never could have accessed before.  Better yet, we’re going to provide these opportunities to our clients with no sunk costs or up front investments for them to make.  This is how technology is empowering the small business like never before.  We couldn’t even dream of this stuff 5 years ago!  

If you’re looking for a more B2C approach to platforms, imagine being a wholesaler of cosmetics who creates a one stop services platform that enables a small French manufacturer to sell directly to customers in Malaysia.  Or perhaps a platform could be built by an individual in Bahrain allowing consumer products to be sold directly into her country from anywhere in the world – a single person distributorship powered by market knowledge.  Yes, AliBaba, IndiaMart and so many others are doing this, but they’re still going to struggle with scaling those services which only a small business can provide.  Also, the existence of large platforms won’t cannibalize small business sales.  Uber did not end the taxi, instead it exists in parallel with the traditional taxi business model.  The same will be true of all small businesses.  You can work with the big guys for higher volume, lower margin business and yet build your own platform for higher margin direct to consumer sales.  No more wholesalers to squeeze your profits, and no more risk of being tied to one giant customer as is often the case with small businesses.  

Going forward, the challenge for small businesses will be to update and modernize business processes without losing sight of what made them so successful to being with.  

via GIPHY

Remember, what I said earlier in this post: “…you cannot truly scale service”.  That doesn’t mean small business owners can afford to sneer at “Internet mumbo jumbo” or sit around and reminisce about the days when business was done with a handshake.  What it does mean is that now, more than ever, small businesses need to completely change their approach to doing business and it starts with customer acquisition.  Businesses at any given moment can have multiple problems, but if revenue is addressed then all other problems become easier to fix.  Platforms – both large scale ones as well as small private ones – will be the primary path to revenue growth from here onwards.  The application of technology to the “back end” processes must follow in order for the business to be in sync of course, and some companies would be wise to start by getting their house in “digital” order before going after more business.  The point here is that price, capital and investment risk are no longer excuses for small businesses not to pursue growth.  

Earlier on in this post I touched on the concept of myth and its relevance to everything around us including quantitative elements such as data.  Myth can be expressed in many forms including religious law, superstition, cloud formations and just about anything else one could imagine.  The myth that America thrives on – the very cornerstone of the country in fact – is that of opportunity.  Wealth is of course measured in any number of resources, but the one thing that America – and really any society – rises and falls on is it’s ability to spread opportunity.  So what does this all mean for data, platforms, and doing business online?  It’s all about spreading opportunity.  Today the internet is pushing opportunity beyond America’s borders.  Businesses operating in societies where opportunity is scarce can use an internet connection to “make a sale”.  Ebay can find a buyer for grandpa’s collection of bottle caps from Pakistan.  Etsy can deliver opportunity for handmade goods from a home based business in Sudan. This is how we get from myth to opportunity to data and finally commerce via platforms.  The place where opportunity delivers measurable, exciting results is in the field of commerce and every small business embodies the very hope that this opportunity brings to life.  Building a marketplace that facilitates leather wallet imports from Bangladesh; setting up a company page on LinkedIn; showcasing goods on Instagram and Pinterest – these are the opportunities your business needs to avail today in order to ensure growth.  Your future depends on it!  

top 10 us ports infographic

 

 

 

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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.

crescent air webinar

 

Breakbulk Shipping

Breakbulk Shipping

In shipping, breakbulk cargo or general cargo are goods that must be loaded individually, and not in intermodal containers nor in bulk as with oil or grain. Ships that carry this sort of cargo are often called general cargo ships. The term breakbulk derives from the phrase breaking bulk—the extraction of a portion of the cargo of a ship or the beginning of the unloading process from the ship’s holds. These goods may not be in shipping containers. Breakbulk cargo is transported in bags, boxes, crates, drums, or barrels. Unit loads of items secured to a pallet or skid are also used. A break-in-bulk point is a place where goods are transferred from one mode of transport to another, for example the docks where goods transfer from ship to truck.

Breakbulk was the most common form of cargo for most of the history of shipping. Prior to the mid 1950’s ocean shipping looked very different from what we know it to be today.  Cargo was loaded onto vessels in barrels, crates, sacks and other forms of bulk packaging that were irregular in size and shape.  Manual labor was required to physically unload these goods from ships onto piers where consignees took delivery of their cargo.  In the 1950’s the advent of containerized shipping created a revolution in the way goods were transported by ocean.  This standardized method of shipping changed everything from the nature of ships used for cargo to the need for manual labor and even allowed ports to move away from the edges of major cities into areas where larger terminals could be built to manage the inventory and flow of containers.

Since the 1960’s the volume of breakbulk cargo has declined dramatically worldwide as containerization has grown. Moving cargo on and off ship in containers is much more efficient, allowing ships to spend less time in port. Breakbulk cargo also suffered from greater theft and damage. There were some basic systems in place, of course, to make the process more efficient, such as the use of rope for bundling timber, sacks for carrying coffee beans, and pallets for stacking and transporting bags or sacks. However, industrial and technological advances, such as the spread of the railways in the 18th century, highlighted the inadequacies of the cargo shipping system. The transfer of cargo from trains to ships and vice versa became a real problem.

Before the container shipping industry emerged, boxes of various types and sizes had often been used in transporting cargo simply because this was the logical way to move things en masse from one location to another. However, despite these developments, cargo handling was almost as labor-intensive after World War II as it had been in the mid-1800s.

According to Breakbulk.com, the interest in breakbulk shipping has grown so large there are conferences dedicated to just that topic such as Breakbulk Americas 2015, which is the largest exhibition and educational forum in the Americas addressing the needs of traditional breakbulk and project cargo logistics professionals.

The method of loading cargo in a “loose” or non-containerized manner, however, persists to this day. Breakbulk is the method of shipping needed for cargo that is too big or heavy to be loaded into a shipping container, or for cargo that cannot enjoy economies of scale through containerized shipping.  The most obvious commodity that comes to mind is an automobile, which can be driven onto a Roll on/Roll off (“Ro/Ro”) vessel thereby allowing a liner to transport more vehicles than they could if shipping containers were used.

080113-N-0292S-066Breakbulk shipping has now come to be a key mode of transport for shippers of large freight such as oil & gas equipment, military vehicles, cranes, earth moving equipment, large reels and spools of cable, manufacturing equipment and other oversized goods.  The impact & benefit of breakbulk shipping is obscured by the volume of container shipping.  However, consider the fact that it is breakbulk shipping which allows major oil and gas projects to become operational by facilitating delivery of oilfield compressors and drilling equipment.  Similarly, worldwide construction is directly affected by the availability of construction cranes.  Major infrastructure projects such as road, train, and dam construction would not be possible without the use of massive earth movers, pile drivers, and other excavating equipment.  All of these key elements of the global economy and the movement of capital goods are made possible by breakbulk shipping.

The specifics of breakbulk shipping are often overlooked, but highly relevant to shippers of large cargo.  Here are some general insights into how such cargo is loaded:

  1. Unlike containerized cargo which can be loaded at a shipper’s facility or a container freight station, breakbulk cargo has to be delivered directly to the port of departure and stored in warehouses.  From a cost standpoint, shippers should be aware that there are almost always receiving and warehousing charges applied by the origin port for receipt and storage of this cargo.
  2. At time of loading the cargo is moved to the quay and can be loaded onto ships in several ways.  For example, ports may have cranes on the port side of the vessel which actually hoist the cargo onto the ships.  Many breakbulk ships also have their own cranes on board which can lift the cargo from port side onto the vessel.  Shippers of cargo built onto a platform such as an oilfield compressor, or cargo housed in large crates such as turbine parts or industrial machinery often have their cargo hoisted onto vessels by either port or ship cranes.  Cargo that is “self propelled” such as heavy vehicles, construction cranes and other cargo of a vehicular nature will often be driven onto the vessel.
  3. Once on board, a pattern of load planning is implemented by the lines.  For example, large wooden crates are often stowed in the mid or “’tween” decks of the vessel, with heavier crates often being loaded at the bottom of such decks.  Also, the cargo is often lashed, strapped or otherwise secured in place to prevent shifting in transit.  Vehicles, are usually driven on & off the vessel but can also be hoisted on board by cranes, and are secured on board with lashings. Vehicles, especially cranes, and military vehicles are often towed on board with the use of MAFI trailers which are essentially platforms or chassis that can haul the vehicle.
  4. Cargo is unloaded at destination in much the same manner as it is loaded, only in reverse of course. Aside from conventional unloading at destination piers, cargo can also be hoisted from one ship to another, a process often referred to as “hook to hook” delivery.  For example, mining equipment, oil and gas equipment and similar products which are to be barged or sailed to remote destinations often are delivered this way.

Despite its importance to the worldwide market for project cargo and capital goods, not all logistics providers are capable of offering breakbulk service to their customers.  The planning that goes into the quoting, booking and execution of such shipments can be painstaking and the cost of mistakes can be high.  For example, a logistics provider will often have to account for haulage costs which include specialized trucks, port receiving charges, usage of port equipment such as cranes and hoists, port warehousing charges and inspection charges at time of loading.  And these are charges to be considered before the cargo even gets on board.  Similarly, logistics providers must be aware of costs, permits, and potential problems at destination ports as well as in any transit points en route.  The potential for cost overruns and unanticipated costs is very high.

A logistics provider also must have sufficient knowledge and capability in place to meet the needs of clients who ship large or oversized cargo that would require breakbulk service.  Many a freight forwarder has quoted and accepted breakbulk business only to realize at time of booking that the cargo simply does not fit in an ocean container and falls outside their expertise.  The ensuing costs and trouble to shippers can be significant as cost overruns, delayed pick-ups or sailings and other problems can arise that adversely impact the success of an order for such an important part of their business.  Breakbulk shipping does involve a high degree of complexity and hence each shipment requires unique practices and protocols to ensure proper execution.

While close collaboration and planning is required between a shipper of breakbulk goods and their logistics provider, shippers should have clear plans in place to address the following issues related to a breakbulk shipments:

o      Transit times & Vessel frequency – breakbulk vessels do not always follow the weekly sailing schedules that are typical of containerized vessels.  Also, breakbulk ships can often be diverted to pick up special shipments on a charter basis.  Accordingly shippers need to share their lead times, required delivery timeframes, and other key transit details to plan accordingly.

o      Inland – as mentioned above, large cargo may often require special permits due to domestic road restrictions, size limitations, etc.  Also, ports may have restrictions on times or types of cargo delivery.  Shippers need to be aware of this as “just get it there” is rarely an option where it comes to breakbulk shipping.

o      Permits & Restrictions – continuing on the matter of inland shipping, shippers need to know what limitations their cargo faces.  Is the product so large that it can only be trucked at night time to avoid traffic problems?  Does the haulage of their product require multi-state permits?  Failure to know any of these requirements can stop a shipment right at the factory door, long before reaching ports.  Failure to comply with inland regulations can additionally cause penalties to be enforced against the shipper or their vendors.

o      Loading – hoisting, roll on/roll off, towing, and other means of loading result in charges.  Ports will charge for usage of cranes with a minimum of several hours usage even though hoisting may only take a few minutes.  Costs need to be budgeted accordingly.  Similarly, durability of packing and crating needs to be considered; not just for the haulage and sailing of the cargo, but also for the loading of the cargo.

While the advent of container shipping has brought fantastic advantages and benefits to the shipping industry and the global market, we cannot discount the fact that breakbulk shipping still has its place. At the end of the day, a shipper needs to understand all facets of breakbulk as well as containerized shipping if they are going to efficiently and effectively charge for the job and get it done right.

Container Info & Spec Sheet

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.

What is the greater cost: Stockpiling Inventory or Missed Sales?

What is the greater cost: Stockpiling Inventory or Missed Sales?stockpiling inventory warehouse

Logistics professionals are on the front lines of the fight to maintain market presence and minimize costs of product supply. One of the main issues faced is whether or not to stockpile inventory in an overseas destination or risk losing sales due to lack of inventory in that market.

Most large organizations have implemented good demand planning practices which enable them to plan production and shipping schedules. A client of ours, who is a global leader in the tobacco business, had such an efficient schedule in place for their business in Turkey that they were able establish a precise order flow one year in advance. Their demand planning was so effective that they almost never required air freight service for this market and could tell months in advance exactly how much product was to be shipped in any given week of the year.

On the other end of the spectrum, another client of ours who is a global leader in the foods business had a simple mistake in their demand planning process force them to de-list product from the market in Singapore for an entire month until they could send over the product needed to meet demand by ocean.

So you want to stockpile?

Here are some factors to be considered when deciding whether or not to stockpile inventory:

  • Failure to have inventory in market leads to obvious decreases in sales, cash flow and profitability.
  • Storage of inventory, especially overseas, is often expensive and eats directly into profit margins.
  • Inventory shortages often have to be met by expedited modes of transport and often specifically by air freight which is generally expensive and adversely impacts profit margins.
  • Excess product can be subject to damage, theft, obsolescence or other misuse which can result in direct and substantial losses in terms of write offs, discounted selling prices or additional processing costs.

So what to do?

The primary determinant of whether or not to incur increased transport or storage costs is profit margin. Coming back to the example of our client in the tobacco business, even though they enjoyed tremendous operational efficiency in their exports to Turkey, this client often relied on air freight to meet demand in the Far East. They also used air freight for new brand or product introductions and generally developed a market by using air freight first and then gradually shifting logistics to ocean freight. Very often the excess air freighted product was warehoused overseas in markets such as Japan and Hong Kong. Their tolerance for such expense came from the substantial profit margins they enjoyed. Equally important was their branding. The client believed that the cost of not having product in the market was not only high in terms of lost sales, but also in terms of damage it would do their brand in overseas markets.

But what if we don’t have the profit margins to support such costs? Let’s re-visit the example of our client in the foods business. Despite having a very good demand planning system in place as well as the resources that came with being one of the world’s largest corporations, this client ran into a problem that could happen to anyone: human error. Apparently, one of their demand planners in Singapore simply forgot to enter her orders before leaving for vacation. As a result production never got the orders and nothing was scheduled to ship by ocean. By the time the problem was detected the client had no other option but to use air freight to meet the demand of 30 tons of their merchandise in the local market. We assisted the client by providing a combination of cost effective air freight, and even created a schedule to stagger the shipments in such a way as to spread the cost out over several weeks just to minimize the cash flow impact they were about to feel. After careful review of the numbers, however, the client decided that their profit margins simply did not justify them incurring the cost of air freight. For 30 days they had no goods to sell in Singapore. From a profit and loss standpoint the choice was clear and that was the client’s main deciding factor. We presume that the loss far exceeded benefits that they may have realized in terms of brand equity and market share.

In both instances, what we have learned is that there are direct, indirect, obvious and discreet costs involved in managing international business. One of the best things a logistics professional can do is to learn what matters to their organization not only in terms of delivery but also in terms of profitability, cash flow, market-share and brand equity.

Logistics professionals need to consider the following when deciding whether or not to stockpile inventory:

  • Cost of domestic/overseas warehousing of excess inventory.
  • Cost of insurance of stored excess stored inventory.
  • Cost of air freight for excess inventory versus cost of ocean freight & storage of excess inventory.
  • Impact on company profitability and cash flow from absence of product in market.
  • Importance of product availability to the corporate brand.

So when you are in a position where you need to decide whether or not to stockpile, don’t hesitate to reach out to us and talk with one of our Logistics Professionals to make sure you understand all of the associated costs which will allow you to make the best, most informed, cost effective decision for your company.

Screen Shot 2014-05-22 at 1.00.30 PM

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

LCL: Ocean Shipping for the smaller volume shipper

LCL: Ocean Shipping for the smaller volume shipper

Screen Shot 2014-11-20 at 2.38.31 PMShippers often believe that they have to choose between enduring the high price of air freight in order to trade in small lots, or scaling up to large volumes in order to drive down per unit transport costs through containerized or bulk shipping.   There is however, a viable solution that allows companies to move product in small lots without paying the air freight premium.  Known as “LCL” or “Less than Container Load”, this mode of ocean shipping offers companies of all sizes substantial benefits and can help optimize their supply chains and international business processes.

What is LCL?

Quite simply, LCL is consolidated ocean freight.  Instead of consolidating sufficient orders to fill one’s own container, a shipper can tender their smaller lots to a freight forwarder or ocean freight consolidator who will in turn load a container with cargo booked by their other customers.  There are several advantages to having LCL as a shipping option in your firm’s logistics process including the following:

  • Shippers who do not wait to ship product until they have enough orders to fill their own container are able to supply or receive their goods much more quickly.  The benefits of this alone are significant as it can have a favorable impact on sales, profitability, order to cash realization, warehousing costs and customer satisfaction through expedited delivery.
  • Shippers who do not need the speed of air freight can realize tremendous cost savings by routing cargo through LCL ocean freight.  While the unit transport cost of LCL will not be as low as that of a full container (FCL), it can be substantially lower than that of air cargo.
  • Using LCL as a mode of transport allows shippers to engage in test marketing or perhaps even embark on a gradual market expansion.  LCL does not require a company to ship entire container loads of merchandise when such demand has yet to be established, thereby eliminating risks of overstocked merchandise, warehousing costs in the destination market, and other such carrying costs.
  • LCL is more expensive on a per unit basis than FCL shipping.  This is rather straightforward since buying part of a container will not yield the cost benefit of buying an entire one.

Small and midsized shippers are the most direct beneficiaries of the LCL mode of transport. The logic here is straightforward, as companies lacking larger volumes will simply take longer to realize enough demand/sales to fill a full container.

Large shippers also have the ability to benefit from LCL cargo in several ways.  By using LCL to reach markets that have demand, but are so small as to not justify entire container loads of volume, large companies can continue to meet their customers’ needs.  Also, large shippers may have a tremendous amount of cargo from various suppliers or going to various domestic distribution centers.  This effectively enables them to build their own consolidations across a region.  As an example, imagine a retailer with outlets throughout the United States East Coast region who sources product from 5 different suppliers in China.  The opportunity exists to consolidate cargo from all the suppliers and build one’s own container.  Upon arrival in the U.S. the container can be delivered directly to the retailers’ regional distribution center for onward distribution.  The retailer hence realizes a considerable saving by not using air freight from 5 different suppliers and by building their own consolidation.  They would have also likely realized similar savings (though somewhat less) by booking their shipments with an ocean consolidator from each of the 5 origins in China.

There are some pitfalls associated with LCL cargo, and the most notable of these is a lack of transparency.  While a full container is easily tracked, as is an air freight shipment, LCL cargo may sometimes appear to be in a “black hole” once it is loaded at origin.  This is because cargo may change hands between a few consolidators, or containers may transship through multiple ports en route to final destination which may not be apparent at time of booking.

There is also some difficulty in understanding total costs of shipment.  Due to charges incurred at destination, such as port charges, warehousing and unloading costs it can be difficult to arrive at a an accurate, consistent landed cost.

Fortunately, both of these problems can be minimized by a freight forwarder.  Freight forwarders maintain strong buying relationships with ocean freight consolidators which enables them to make pricing and routing decisions based on best practices in the marketplace.  Shippers/importers don’t have to feel like they’re taking a leap of faith with a consolidator so long as they have an experienced freight forwarder assisting with booking, documentation formalities, route optimization and tracking capabilities.

As ships sail faster, and countries develop better inland infrastructure in the form of railways and highways, LCL cargo will continue to become a more viable transport option for shippers of all sizes.  By working with a freight forwarder, shippers and importers can develop and implement a plan to ensure timely and cost effective supply of merchandise without having to incur the expense of air freight and without being forced to commit to the volumes needed to maximize utilization of a dedicated ocean container.

Some Interesting LCL facts:

As a general guideline, 10-15 cubic meters of cargo is considered the upper limit for LCL freight.  If a company is shipping more than this quantity, it is likely that they would benefit from using their own 20’ container even if the containers capacity is underutilized. 

The main unit of measure for LCL cargo is the cubic meter (cbm).  To determine the # of cubic meters you are shipping use the following calculation:

In Inches:Container Info & Spec Sheet

Length x Width x Height / 1728 = cubic feet

# of cubic feet / 35.31 = # of cubic meters

In Meters:

Length x Width x Height = # of cubic meters

By Gross Weight:

Gross weight in kilograms/1000

LCL charges will be based on the higher of the cubic meters or gross weight (kgs.) per 1000. 

 

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

 

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.

 

 

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?