Logistics

Trade credit is often extended by carriers (for example: operators such as Hamburg Sud, where I worked for a spell) to regular or high-volume/-value customers. For firms who require frequent shipping, credit provision is one benefit of holding managed accounts with the carrier (other benefits are customer service-related). When cash-flow constraints limit the availability of funds, credit facilitates business continuity. When the restraint is lifted (when the funds from a major sale are received, for example), the firm can then repay the credit extended by the borrower. In the case of shipping, firms may experience demand spikes. To meet their orders, firms might have to increase capacity. Any expansion of plant will come at high cost. If overseas orders are particularly voluminous and sudden, the transportation budget that normally covers shipping costs quite adequately will probably be insufficient. To deliver however, the firm will need to ship. Offering favourable credit terms provides firms with much needed flexibility. Carriers who can extend trade credit are especially attractive to small and medium-sized export-oriented manufacturers. The normative assumption is that the customer will repay the carrier when financial stability is re-established.

Normally, credit obtained directly from the shipper is simpler to obtain and cheaper to service than credit obtained from a third party, such as a bank. Trade credit rarely inflicts the interest rates and penalties that characterise bank loans. For the carrier too, trade credit is beneficial: provision of trade credit also allows vessels to sail with an economically rational quantity of cargo. ...continue reading

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International Trade is a risk-prone activity. Transportation related risk is largely external to the firm. That is, transportation is more likely to be interrupted and cargo lost due to factors outside the control of either the selling or buying party. Cargo loss can result from illicit human intervention (crime or terrorism), accidents (crashes, derailments, shipwreck), political incidents (trade embargo or trade war), administrative error (placing of cargo on the wrong vessel), and so on. Such events will incur losses for both the buying and the selling companies. The buyer will be without the product or materials required to continue production or business. The seller may lose the payment from the disappointed buyer. Either or both parties may have to bear the costs of recovering the goods and rearranging onward or return shipment. ...continue reading

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A major non-mechanical mode of transportation is pipeline. Fluids, i.e. gases and liquids, can be efficiently and economically transported via pipeline. Pipelines can be overground or underground. Historically speaking, several major urban centres have experimented with pipeline or tunnel-based small freight transportation systems (New York’s pneumatic postal system, the underground post rail of London, etc.). Such systems are now mostly defunct due to the inescapable rigidity that they impose. The following describe the advantages and disadvantages of pipeline systems. ...continue reading

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Seas and waterways offer a historically validated mode of economic movement of goods. Ports and coordination systems constitute the major land side cost. Vessel construction and management represent a major investment for the shipbuilder. Containerisation has simplified the loading and unloading of vessels, and allowed for vessels to be increased in size. Shipping by sea is most economical when done in high-volume. This means that the most economic will vessels to operate are the very largest carrying the highest number of containers possible. The consequence of this is not all of the world’s ports can accommodate super-size vessels. The largest vessels can dock only at the largest ports. To bring containers inland, a functioning road or rail infrastructure is necessary. ...continue reading

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Rail is another form of land-based transportation. The United Kingdom and most European Union countries have extensive rail networks. In the United Kingdom, private rail freight providers offer highly competitive rates for companies moving large and heavy bulk materials, such as shipping containers, aggregates, liquids, and other high-volume, high weight loads. Material by the train-load is highly economical, provided the volume is sufficient to merit the single train-load configuration. In most cases, volume requirement is sufficient (low volumes tend to go more economically by road), hence train-load configurations are these days more common than wagon-load.

(In the wagon-load configuration, wagons carrying different loads are marshalled together by shunting to form the train. in the train-load configuration, all the wagons that comprise the train are loaded with the same material or cargo - ideally for the same customer.)

The train-load formation is typical of UK freight by rail, with only a few companies these days committed to and capable of profitably configuring wagon-load trains. The case of intermodal containers is representative. Few of the UK's rail freight operators perform intensive wagon-load operations, since wagon-load configurations require marshalling processes that incur non-value adding activities. Freightliner, for example, prefers to run trains that include empty intermodal wagons rather than shorten trains according to exact requirement. Shortening the train is regarded as an unnecessary and uneconomical operation, so is avoided. Costly marshalling is minimized. In Continental Europe, marshalling yards are more common, but still impose a profitability constraint.

With the Channel Tunnel, inward rail freight has increased. Inside the United Kingdom, shipping container movement is currently the most common type of freight moved by rail. Although the advantages of rail are considerable, the disadvantages are also acute. The following describe the advantages and disadvantages of freight by rail. ...continue reading

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The main modes of transport can be roughly divided into surface and air modalities. Sea, rail, road (ship, train, and truck, respectively, generally speaking) make up the surface modalities. Aircraft (fixed-wing and rotor) are the air modalities.

In the United Kingdom and the European Union, road transport is the principal method for national and international freight movement. The convenience of road transport is so great that it outweighs most cost factors. Road transport enables point-to-point collection delivery. Large vehicles can carry bulk to warehouses or central distribution centres, where bulk is broken and smaller orders can be delivered by smaller trucks or vans to commercial or private addresses. In many cases however, it is possible for large trucks to deliver goods directly to the customer without need for distribution centres. Is this flexibility that makes road transport cost and time effective.

The following sums up the advantages and disadvantages of freight by road. ...continue reading

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As might be obvious from the previous posts on incorterms, several Incoterms are applicable to waterway transportation only: FAS, FOB, CFR, CIF, DEQ, and DES.

The following Incoterms apply to all modalities, including Intermodal: EXW, FCA, CPT, CIP, DAF, DDU, and DDP.

In some cases, it is advisable to attach wording to Incoterms that clarifies the responsibilities of the buyer, seller, and carrier. For example, use of the term “DDP VAT unpaid” indicates unambiguously that the seller does not bear responsibility for the payment of VAT.

While undeniably useful, Incoterms also have their limitations: ...continue reading

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  1. DAF: Delivered At Frontier (followed by the named place). The seller bears responsibility for clearing the goods for export and delivering them to the buyer at the location specified (the “named place”). Unloading and clearing for import are the responsibility of the buyer. The buyer is also responsible for insurance, unloading, import customs, and bearing all risks for the moment goods have been delivered to the named place. A “frontier” can be any specified point of delimitation, and can include the frontier of export. DAF is applicable to any modality, provided shipment to the “named place” (i.e. the “frontier”) is by land. DAF is sometimes replaced by DAT – Delivered At Terminal (by the seller).
  2. DDP: delivery duty-paid (followed by the named place of destination). When this code is specified, the seller has agreed to clear goods for export, and bears responsibility for delivering to the buyer at the named destination. The seller also bears the charges of import customs clearance. Under this code, the seller bears and the cost of all transportation, including any tariffs and incidental charges payable at import. The buyer is responsible only for the cost and organisation of unloading. DDP is applicable to any modality, but the buyer bears responsibility and risk until the goods arrived at the “named place”. ...continue reading
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