Saudi Arabia – Not Just for Oil

oil fieldsSaudi Arabia – Not Just for Oil

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

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

Trade Lanes

Diversification and Infrastructure

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

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

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

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

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

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

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

Trade

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

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

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

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

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

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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.

 

 

 

 

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.

ITAR CTA

 

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.

 

 

 

 

 

Top 7 Markets for U.S. Paint & Coatings Manufacturers

Top 7 Markets for U.S. Paint & Coatings Manufacturers

Why are we looking at paint you ask?  From the logistics perspective it’s a very interesting commodity actually.  To begin with, it’s liquid and hence dense.  Density is a crucial element in the logistics planning and handling process.  As we explained in this prior post, density has a direct impact on total landed cost.

Crescent Paint ImageAnother matter of interest for us at Crescent Air Freight is the fact that paints are almost always classified as hazardous materials which is something that requires special handling and attention.  Despite a standard set of international regulations, no two airlines handle the acceptance and transport of hazardous commodities in the same way, hence we’re always on our toes as we help our clients plan their export processes for paints. 

Lastly, paint is a product that crosses industry lines.  We ship it as a raw material for our automotive customers.  We also handle coatings for our clients who deal in various manufacturing industries such as boat building, construction materials and sometimes even foods.  Yes, foods!  Now there’s no paint in your food supply, but there are coatings and one such example is shellac.  Food grade shellac is what makes your kids candy shiny.  Without it, candy would be a lot less appealing to look at.  Meanwhile, it’s also a flammable liquid and hence hazardous. 

So plain old paint meets the needs of a lot of different industries and hence we felt it was important to take a look at this commodity and its value overseas.  Accordingly then, here are the top 7 markets for paints and coating as defined by the U.S. Department of Commerce’s statistics for 2014. 

 

  1. Canada – 2014 U.S. Exports of Paint & Coatings – $1,106,629,000.00

The logistics of shipping paint to Canada is rather simple since the overwhelming majority of shipments travel over the road.  U.S. exporters would do well to look at this market for its size and ease of trade and transport procedures. 

 

  1. Mexico – 2014 U.S. Exports of Paint & Coatings – $595,175,000.00

2nd place by a wide margin, but nothing to sneeze at, Mexico offers many of the exact same benefits as Canada.  Cross border trucking eliminates many of the logistics hassles that come with air and ocean freight transport.  Meanwhile, with industries as diverse as construction and automotive manufacturing, Mexico offers strong demand for U.S. made paints & coatings. 

 

  1. China – 2014 U.S. Exports of Paint & Coatings – $126,153,000.00

A country with an industrial base the size of China’s is going to consume a lot of raw materials.  Coatings and paints fit well here, especially where it comes to high end/high value products.  Exporters, however, need to be careful with logistics compliance as this market requires shipping by air or ocean freight and each of those modes has separate and unrelated procedures for compliance in both the U.S. and in China. 

 CTA

  1. United Kingdom – 2014 U.S. Exports of Paint & Coatings – $56,708,000.00

America’s biggest overseas export market, unsurprisingly, demands a lot of U.S. made paint & coating material.  Trade regulations are easy with the UK and hazardous materials shipping regulations are straightforward, meaning U.S. exporters can confidently add this market to their export business mix without worries over hazmat rejections, documentation errors and discrepancies, etc. 

 

  1. Japan – 2014 U.S. Exports of Paint & Coatings – $52,437,000.00

A popular destination for this commodity is Far East Asia.  Japan is the 2nd biggest Asian market for U.S. made paints and coatings.  Trade policies are generally stable, but the costs associated with shipping hazardous materials to Japan are often higher than other markets.  U.S. exporters should pay close attention to the landed cost of their goods when researching sales opportunities in Japan. 

 

  1. South Korea – 2014 U.S. Exports of Paint & Coatings – $45,850,000.00

Another vital Asian market offers U.S. exporters of paints and coatings great opportunities.  South Korea does have some logistics policies that can add on costs, especially when shipping by air.  For example, cargo arriving in Incheon Airport (Seoul) over the weekend accrues greater amounts of airport storage than cargo arriving on weekdays.  Also, costs of domestic trucking and handling of hazardous materials can carry significant premiums which can directly affect export order profitability. 

 

  1. Taiwan – 2014 U.S. Exports of Paint & Coatings – $42,118,000.00

Much like China, Taiwan’s industrial base has strong demand for high end inputs including paints and raw materials.  U.S. exporters will find Taiwan to be a good market in terms of size and trade policies.  However, shipping hazardous materials to Taiwan by air can be difficult.  The main airlines serving Taiwan often impose high premiums for flying such cargo, and on top of that we’ve even seen circumstances where cargo has been offloaded per pilot’s instructions despite proper compliance with regulations on the part of shippers and their freight forwarders.

 

In addition to these markets, there are terrific overseas export opportunities in countries such as Germany, Brazil, Australia and India to name a few.  At Crescent Air Freight, we have handled the needs of paint and other hazmat shippers for nearly 4 decades.  It takes experience to navigate the complexities of such international shipping transactions and we look forward to putting our capabilities to work for your export business. 

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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 11 Export Markets for U.S. Oil and Gas Industry Equipment

Top 11 Export Markets for U.S. Oil and Gas Industry Equipment

Screen Shot 2015-08-30 at 5.47.22 PMDespite significant drops in global oil prices, demand for energy supplies remains strong.  While the supply of crude oil dominates industry and world news headlines, there are several industries ranging from chemicals to transportation services that are directly impacted by the flow of oil and gas.  We at Crescent Air Freight follow this industry closely as it directly affects many of our customers across a range of business segments from compressors to spare parts, valves and pumps and others.  Based on the general classification from the United States Census Bureau, here are the top markets for U.S. “Oil and Gas Field Machinery & Equipment” as defined by NAICS code 333132:

11. Colombia – 2014 Oil and Gas Field Machinery & Equipment exports: US$196,361,000

Beneficiary of a Free Trade Agreement with the United States since May 2012, Colombia’s oil & gas sector relies heavily on U.S. manufactured equipment to help meet its growing energy needs.  Exporters, however, should be very careful with commercial and shipping documentation to ensure compliance with local customs procedures.

10. United Arab Emirates – 2014 Oil and Gas Field Machinery & Equipment exports: US$285,467,000

Home to the vast oil reserves of Abu Dhabi and trade friendly distribution “mega hub” Dubai, the UAE has been an ongoing buyer of American made products for the oil & gas industry.  The presence of major oil industry players such as Halliburton and proximity to the world’s largest oil & gas producing markets ensures that American businesses will continue to find the UAE to be a growth market well into the future.

9. United Kingdom – 2014 Oil and Gas Field Machinery & Equipment exports: US$218,238,000

America’s single largest market for exports amongst the European Union member nations, and home to vast reserves of North Sea oil, the United Kingdom proves its worth as a solid market for U.S. exports in the oil and gas industry.

8. Canada – 2014 Oil and Gas Field Machinery & Equipment exports: US$301,898,000

As we had highlighted in our list of Top 10 Markets for U.S. Exports, Canada is the # 1 destination for U.S. exports overall.  The country has been in the midst of an oil boom over the past decade and will continue to offer American exporters of oil and gas equipment, services and affiliated products, opportunities close to home.  The Canadian Energy Research Institute estimates the country will see over $500 billion in new investment over the next 25 years, ensuring excellent opportunities for industry suppliers for years to come.

7. Angola – 2014 Oil and Gas Field Machinery & Equipment exports: US$326,030,000

In 2013 Angola ranked as the 71st largest market for U.S. exported goods (source: Office of the United States Trade Representative).  An OPEC member since 2007, Angola derives nearly 45% of its GDP from oil production.  All of this combined with a strong rate of economic growth spells good opportunity for American businesses.

6. Brazil – 2014 Oil and Gas Field Machinery & Equipment exports: US$367,223,000

While a great deal has been made of Brazil’s use of ethanol to achieve energy independence, the fact remains that the world’s 5th largest country does have significant oil reserves and demand.  When it comes time to get the crude “out of the ground” or process its natural gas, Brazil looks to U.S. companies to provide key equipment and technologies to support its energy sector.

5. Russia – 2014 Oil and Gas Field Machinery & Equipment exports: US$395,135,000

Recent political developments have resulted in the enforcement of significant trade sanctions against Russia.  U.S. exporters must exercise caution in dealing with this market for the foreseeable future.  On the upside, however, when sanctions end, business comes roaring back.  Until then, however, there’s always…

4. South Korea – 2014 Oil and Gas Field Machinery & Equipment exports: US$477,029,000

Another country on this list that enjoys a Free Trade Agreement with the United States, South Korea purchases significant volumes of oilfield products and services from the United States.  A favorable trade environment and strong political ties have made this country a Top 10 trading partner for the United States and growth opportunities will exist in the energy sector for years to come.

3. China – 2014 Oil and Gas Field Machinery & Equipment exports: US$503,942,000

Trade compliance issues are to be noted, as well as some difficulties with customs procedures, which we detailed in this recent article.  Nonetheless, China is the biggest overall market in Asia and not surprisingly this applies to the oil and gas industries as well.

2. Saudi Arabia – 2014 Oil and Gas Field Machinery & Equipment exports: US$587,509,000

The conversation on oil, gas and energy begins and ends here.  To say Saudi Arabia is a key market for the oil and gas business is to overstate the obvious.  Luckily for American exporters in this field, Saudi Arabia remains the place to look for growth.  Despite recent drops in oil prices Saudi Arabia has maintained, and slightly increased, its annual budget for 2015 and the energy sector will be the prime beneficiary of this spending.

1.Mexico – 2014 Oil and Gas Field Machinery & Equipment exports: US$842,216,000

As we detailed in this recent blog post Mexico is a great market for two way trade with the United States.  A beneficiary of the North American Free Trade Agreement, Mexico looks to the United States to service the needs of its growing energy demands.  U.S. companies enjoy the ability to reach most parts of Mexico by overland transportation services, and NAFTA enables a smooth and orderly flow of goods thereby minimizing potential customs or regulatory problems.

Rope BailerKeep in mind that these figures only refer to one classification of oil & gas industry equipment.  As energy is a massive industry, so too are the product classifications.  Exporters must take the time to learn about compliance issues and regulatory concerns for their specific product line.  Logistics companies can help by applying their considerable market knowledge and expertise.  U.S. companies are also advised to check with the U.S. Department of Commerce for market and compliance data relevant to their specific products.

 

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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

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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.

Exporting to Mexico

Exporting to Mexico

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

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

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

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

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

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

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

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

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

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