Your Air Freight Questions Answered – Part 1

Your Air Freight Questions Answered

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

Q:             Why does air freight cost so much? 

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

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

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

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

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

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

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

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

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

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

A:              Definitely, maybe…

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

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

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

 

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IoT In the Logistics Space

IoT In the Logistics Space.

IoTEvery once in a while the logistics business gets to be “cool”. We’re not using a tired old pun here about the “cool chain” or perishable transportation solutions. Instead, we’re excited at the moment by the phenomenon known as the “Internet of Things” or IoT. As we’ve shown in some previous posts here at the Exporting Excellence™ blog we really like data and how it can be applied to (or derived from) international business, and IoT is all about the data.  From tracking passenger baggage to initiating preventative maintenance orders on aircraft, IoT is having a profound impact on the field of logistics and there are several ways that your business can benefit from this trend.

As we had mentioned in our post on big data, routine business processes create a great deal of data. This is primarily a byproduct of the increase in digital and online business processes – quite simply, every click we make in a browser, app or other program generates a data point that gets recorded somewhere, somehow. Big Data essentially focuses on how to compile, sort and interpret such data. IoT on the other hand is more concerned with how to “make” more data by bringing devices and gadgets that were previously inanimate and silent to “life” using network and digital communications. The result of compiling all this extra data is to enable businesses to use their resources more efficiently which in turn can increase sales, profitability, or other key business performance attributes.

We were really impressed with this recent report published by Deloitte University (part of accounting and consulting giant Deloitte Touche Homatsu) that offers some great insights into how IoT has been successfully adopted into supply chain and logistics processes as well as the many opportunities that it offers.

So what is the opportunity that IoT brings to the freight business? At the moment, most of the attention is focused on tracking cargo. The ability for an importer to determine how far from port their material sits, for example, seems to hold value for major wholesalers and retailers. Some specialized applications such as temperature monitoring for perishables and transit time tracking for pharmaceuticals seem to be gaining traction as well. A recent example of IoT technology hard at work that we came across was in the logistics of beer kegs. Already a high value segment of the logistics business, IoT is now enabling beer distributors to know how much beer actually remains in a keg. This information actually allows a bar to waste less beer (and more importantly increase yield per keg) and at the same time allows distributors to plan deliveries more efficiently. The “pre-IoT” way of measuring the amount of beer in a keg was to physically tilt it and see how heavy or light the keg was. New kegs, equipped with sensors and IoT technology can actually report the accurate quantity thereby enabling a more efficient supply and utilization process. It’s a product called iKeg from SteadyServe and you can learn more about the concept from this Wall Street Journal blog post or the company’s website. 

All of us in the logistics industry need to embrace our moment of “cool.” There is no need to expound on the many, many ways the internet has changed the world around us … we feel it everywhere. The logistics industry has lagged a bit in technological advancement because we are still a hands on, deliverable operation. It’s easy to leave the “cool” internet technology to those businesses that don’t have so many moving, physical parts. With IoT we are getting a chance to pull the technology available everywhere else, into our business. If IoT can make us operate smoother, track shipments easier, regulate temps better on perishable cargo….. what isn’t “cool” about that? And really, is anything “cooler” than increased profitability and efficiency derived from your supply chain?

 

 

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.

 

 

 

 

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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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.

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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