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.

 

 

 

 

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Does Your Export Need a Special License?

Does Your Export Need a Special License?

Screen Shot 2015-08-27 at 3.08.41 PMLast month we received a call from an exporter who wanted to know how they could determine the ECCN of a product they were planning to ship overseas. The first problem they had was that they didn’t know what an ECCN was, or how to go about obtaining it. We did some work to help the client get the information they needed, but afterwards realized how interesting it was that something so basic to the exporting process could get totally overlooked in this manner. So while we spent the last month or two focusing on complications in the exporting process that may arise from regulations such as ITAR and EAR, we never actually considered what may happen if a shipper’s merchandise requires no license at all. Accordingly then, here are some insights into the means for determining whether your exports are in need of special licenses and if not, what does that mean in terms of your shipping and logistics processes.

Step 1:  Q: Does your shipment actually require an export license?  

A: Maybe. As we’ve detailed in earlier posts, the U.S. Department of Commerce has oversight over most export licensing matters. Factors such as the nature of the commodity or technology it uses will determine whether licenses are required.

Step 2:  Q: How do we figure out if our product requires an export license?

A: The first step in determining this is to find the Export Control Classification Number (ECCN) for your product or commodity. To find this information, exporters typically have 2 convenient options:

  1. The Department of Commerce maintains a Commerce Control List (CCL) on their website, which lists reasons for controls and requirements for export to specific destinations.
  2. Check with the manufacturer of the goods you are exporting. Most manufacturers with international sales not only know the ECCN’s of the products they’re shipping, but also make this information readily available through their websites, sales representatives and international sales & marketing personnel.

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Step 3:  Q: What if there’s no ECCN available for your product?

A:This is not unusual at all. Most products that are not licensed do not have ECCN’s and carry the designation “EAR99”. While you are still required to comply with regulations that prohibit export to certain countries, the product itself likely won’t require any licenses from the Commerce Department if it can be categorized as EAR 99.

Step 4:  Q: So there’s no ECCN, our product falls under EAR99, and you’re not shipping to any embargoed country. Are you now free to ship out your goods?  

A: The short, simple answer is “YES”. There are other requirements to satisfy such as filing a Shipper’s Export Declaration for goods valued at $2,500 or more. Also, goods that may not require a license but that are being sold to a U.S. or foreign military or government, for example, may require compliance with licenses from the U.S. Department of State or Defense, and we have addressed those in earlier posts here on The Exporting Excellence blog.

Step 5:  Q: Shipping requires a freight forwarder. Can all of these processes be outsourced to them?

A: No. Not all export compliance can be outsourced to your freight forwarder. Filing of the Shipper’s Export Declaration and research of the required Schedule B numbers are common practice for freight forwarders. In fact a good forwarder can often give your company guidance on how to properly or better classify your goods. Also, forwarders tend to know a good deal about embargoed countries and destinations. However, where it comes to ECCN’s and licenses from other agencies, freight forwarders are usually not privy to technical data, intellectual property and other details that go into classifying a product and determining it’s relevance to export controls. Shipper’s need to do their homework and can have a forwarder assist in the process, but cannot hand off liability to any outside parties where it comes to such matters of compliance.

 

 

 

 

 

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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Did we mention compliance is important?

Did we mention compliance is important? Armored Vehicle

In March we highlighted the Top 5 Export Markets for U.S. Made Defense, Emergency and Security Vehicles. Despite being a highly specialized segment of the automotive industry, in 2015 we at Crescent Air Freight are experiencing double digit growth in this market as well as in the export of parts and accessories of such vehicles.  While there are significant barriers to entry in the way of manufacturing capabilities and intellectual property, the fact is that growth creates opportunities for sales and also for compliance problems.  Here are some insights into the compliance requirements faced by exporters of security vehicles and their parts and accessories.

 

As we have mentioned in earlier posts, the major two sets of regulations governing the export of defense related equipment, including defense vehicles, are International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR).  EAR apply to products that are known as “dual use” items.  Some examples that come to mind include aircraft radar which can be used for either commercial or military purposes.  In the case of vehicles, a more relevant example would be an armored SUV.  Such vehicles are often exported to countries around the world, especially to countries where domestic law and order circumstances require such protection.  However, so long as such vehicle is not armed and contains no military hardware, it is likely to fall under EAR.  “Likely” is the key word here, as there are additional factors that go into considering which regulations apply.  While most manufacturers are aware of the applicable regulations, an experienced logistics provider with experience in defense related shipments can assist in making such determinations.

 

While EAR oversight falls under the Department of Commerce (and specifically the Bureau of Industry and Security) ITAR falls under the purview of the Department of State’s Directorate of Defense Trade Controls.  ITAR applies to military goods or articles and is highly relevant to the export sales of U.S. defense contractors.  In the security vehicles market ITAR regulations apply directly to exports to U.S. military or other military entities.  As with EAR, there are significant variations and clauses in ITAR that must be adhered to in order to maintain compliance.  In the case of the armored example mentioned above, ITAR would apply in place of EAR had the vehicle been outfitted with hardware to attach a weapon to it.  Here too, however, there are substantial variations to be considered for proper classification and while a manufacturer or distributor of such equipment must have a proper “in house” compliance process, and experienced logistics service provider can offer some guidance in the classification process.

 

MRAP InteriorIn addition to the classification of the vehicle or equipment, exporters must also be aware of whether or not the destination country falls under any restrictions or bans for defense or security trade, and this may even apply to countries through which the vehicle transits.  For example, a client of ours ships parts for MRAP’s and Humvees for the U.S. military in Afghanistan, under an ITAR license.  However, their license does not allow their goods to transit through Azerbaijan.  This is significant because the most cost effective routing for air freight to Afghanistan is via Baku, Azerbaijan.  In order to maintain compliance we devised a new routing for the client that allows their product to travel only through nations that are approved for such goods under ITAR regulations.  Regulations also apply to components attached to the vehicle, hence supply chain managers need to be aware of the country of manufacture of parts and accessories that they have sourced for the final product.

 

Irrespective of which license applies, and the fact that manufacturers and distributors are likely to maintain internal compliance programs, one of the most important steps of the defense export transaction that a logistics provider must demonstrate competence with is the proper filing of the Shipper’s Export Declaration (SED) – now known as the EEI.  While the EEI filing is required for all U.S. exports in excess of $2,500.00, there are special classifications for goods shipped to the U.S. military, foreign militaries and foreign governments, all of which are relevant to the export of security vehicles and other defense equipment. 

 

As political events continue to drive demand for U.S. made defense, emergency and security equipment the need for proper compliance is more important than ever before.  Crescent Air Freight offers its clients the resources needed to support their export business in defense and commercial trade.

 

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Top 5 Markets for U.S. Defense, Emergency & Security Vehicles

Top 5 Markets for U.S. Defense, Emergency & Security Vehiclesdefense vehicles

While U.S. trade in defense, emergency and security vehicles has seen a slowdown in recent years due to the end or drawdowns of overseas conflicts, the fact remains that these products enjoy substantial demand overseas, even in peace time.  Friendly nations continue to be buyers of U.S. defense and security vehicles in support of their domestic defense and law enforcement activities.  Additionally, emergency vehicles, such as ambulances manufactured in the United States, continue to enjoy strong demand overseas due to their capabilities and durability.  Lastly, despite drawdowns and withdrawals from conflicts in the past few years, the United States maintains a significant overseas defense presence that requires ongoing servicing and replenishment in the form of new vehicles and parts thereof.  The data on this market, sourced from the U.S. Census Bureau, requires some careful consideration as certain manufacturers may fall into categories that refer to their general defense business which often include categories aside from vehicles.  Meanwhile, a great number of exporters in this segment simply fall under the same classification of conventional heavy vehicles such as trucks.  At Crescent Air Freight, our expertise in the logistics of vehicles and parts thereof for defense, emergency and security vehicles gives us a unique perspective into the handling of these products as well as keen insight into the export markets and trade data that are truly relevant to this sector.  Based on NAICS code 336992, here’s a look at the top five markets for U.S. exporters of defense, emergency and security vehicles:

5. Australia – 2014 U.S. Defense, Emergency & Security Vehicle Exports – US $49MM

Signed in 2007, the Australia-US Defense Trade Cooperation Treaty has opened the door to expanded cooperation between the United States and Australia in the trade of defense and security related goods.  The treaty came into effect in May 2013, and a subsequent increase in shipments of U.S. made military vehicles has ensued.  U.S. exporters of such goods and related components will find easier trade and export control compliance procedures in dealing with Australia, which incidentally has also been a hot market for U.S. exports over the past decade.

4. South Korea – 2014 U.S. Defense, Emergency & Security Vehicle Exports – US $63MM

The United States has maintained a significant military presence in South Korea since the Korean War.  Export data will certainly reflect a bias towards the U.S. military business in the country, however, support for Korean defenses does offer significant opportunity for U.S. manufacturers of such vehicles as well as their components, spares and accessories.

3. Afghanistan – 2014 U.S. Defense, Emergency & Security Vehicle Exports – US $66MM

While combat operations in Afghanistan officially ceased at the end of 2014, the United States continues to be involved in training, equipping and generally supporting Afghan defense and domestic security forces.  Aside from vehicles themselves, we continue to see strong activity in the export of emergency and security vehicle parts such as engines, armor, body kits and affiliated products and believe this will continue for some years to come.

2. Israel – 2014 U.S. Defense, Emergency & Security Vehicle Exports – US $106MM

Like Australia and Saudi Arabia, Israel is neither a recent nor current “war zone” country, nor a place where U.S. combat operations take place.  As a beneficiary of U.S. military aid and cooperation, however, it is a market that is extremely friendly to U.S. exporters of defense vehicles and related components.

1.Saudi Arabia – 2014 U.S. Defense, Export & Security Vehicle Exports – US $253MM

Saudi Arabia is an excellent market for U.S. vehicles and related components in the commercial and defense sectors.  At Crescent Air Freight we have seen continuous and sustained demand for U.S. manufactured components of security vehicles ranging from sirens and light bars to engines, ambulances and armored vehicles for several years.  While there are some concerns about future growth in this market as a result of declining oil prices, it is clear that Saudi government expenditure on its defense and security sector will continue to be a high priority for many years to come.

While we’ve only highlighted the top five markets for U.S. defense, emergency and security vehicles there is significant opportunity for American companies in this sector to export to high demand markets including Canada, Colombia, Egypt, Iraq and Tunisia to name but a few.

At Crescent Air Freight we have developed a range of services in support of our clients who export security vehicles and parts thereof.  We provide U.S. shippers a complete package of services including trade and finance compliance, consolidation and proper shipping procedures and even final delivery solutions.  If you have any questions regarding these overseas markets, or procedures for shipping these goods internationally, please visit our website at www.crescent1.com or contact us at cargo@crescent1.com.

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Top 10 Markets for U.S. Exports

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Importing & Exporting with Indonesia

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Continuing our focus on the global markets that offer the brightest prospects for U.S. exports and imports, we now turn our attention to Indonesia. Our previous reports had focused on the BRIC countries, namely Brazil, Russia, India and China. Subsequently, a new crop of countries known as MINT (Mexico, Indonesia, Nigeria & Turkey) has arisen as drivers of future growth for U.S. businesses. MINT is an acronym originally coined by Fidelity Investments, a Boston-based asset management firm and was popularized by Jim O’Neill of Goldman Sachs, who had created the term BRIC. The term is primarily used in the economic and financial spheres as well as in academia. Its usage has grown especially in the investment sector, where it is used to refer to the bonds issued by these governments. These four countries are also part of the “Next Eleven”. We recently profiled Mexico and identified it as a source of excellent two way trade with the United States. This month we turn our attention to the Indonesian part of MINT

Based on key metrics such as market size, growth potential and accessibility, Indonesia has emerged as a country offering strong economic growth potential. According to World Trade Organization statistics, Indonesia is the world’s 27th largest exporting country. Indonesia is also the world’s fourth most populous country after China, India, and the United States and the world’s third most populous democratic country after India and the United States. In 2009, BRIC and Indonesia represented about 42 and 3 percent of the world’s population respectively and about 15 percent of global GDP altogether. All of them are G20 countries. By 2015, Internet users in BRIC and Indonesia will double to 1.2 billion. In 2009, Indonesia was the only member of the G20 to lower its public debt-to-GDP ratio – a positive economic management indicator. U.S. companies exporting industrial machinery and equipment, chemicals and food products can benefit from opportunities in Indonesia.

From a logistics perspective, Indonesia does have some significant limitations that can adversely affect your export business. The primary issue the country faces in this regard is a weak transportation infrastructure. While Indonesia has been steadily investing in its ocean ports and diversifying traffic away from the main port of Jakarta, there is still a great deal of work to be done. Airport infrastructure in the major cities of Jakarta and Surabaya also are strong and well suited to international trade. However, poor road infrastructure can create significant challenges for U.S. exporters who are selling goods on a DDU or DDP basis. Delays in delivery times and increased costs associated with locating suitable trucks for local delivery can inflate costs thus eroding profit margins on export sales.

Another major issue that U.S. exporters must contend with, and one that poses serious obstacles to Indonesia’s growth as a desirable market for foreign goods and investment, is that of customs procedures. The basic documentary requirements for import into Indonesia are rather straightforward. Exporters must provide:

1. Airway Bill or Ocean Bill of Lading that show the actual cost of transport.

2. Commercial Invoices that clearly state the buyer and seller of goods.

3. Certificate of insurance.

4. Certificate of Origin.

Despite these clear and brief requirements, however, the potential for delays and cost overruns resulting from customs compliance issues is significant. For example, the requirement that shipping documents should state the actual cost of transport is significant as Indonesian customs charge import duties on the combined value of merchandise value and cost of transport. Exporters must be aware of this as it has a direct impact on the landed cost of their merchandise. Logistics providers should be aware of this and ensure that their documents reflect accurate charges so as to prevent their clients from unnecessarily facing excessive duties which can result in lost profits and claims from dissatisfied or “overcharged” customers.

Similarly, the accuracy of information stated on commercial invoices is of utmost importance. Discrepancies in the details of the seller, buyer or merchandise stated on invoices can cause Indonesian customs officials to withhold release of goods until corrections or amendments are made thereby resulting in additional costs such as storage, detention charges, courier costs for replacement documentation and fines or penalties for incorrect paperwork.

While the potential of Indonesia as a market for U.S. goods is significant, exporters and logistics companies must be keenly aware of the pitfalls that come with shipping to this market. Knowing these pitfalls is significant to your growth in logistics. Even with pitfalls Indonesia will be ranked seventh in GDP by 2050 according to Jim O’Neill. The country is the largest economy in Southeast Asia and a member of the G-20 major economies. Currently Indonesia has the world’s 9th largest GDP-PPP and 16th largest nominal GDP. Definitely not a market to ignore.

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“Nearshoring” Opportunities on the Rise

“Nearshoring” Opportunities on the Rise

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

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

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

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

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

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

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

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

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

 

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