Global Transportation: Challenges, Logistics & Reverse Flows
Challenges in Global Transportation
Compared to domestic freight movements, global transportation experiences:
- Longer and more variable transit times
- Risk of in-transit product damage or loss
- Higher delivery and accessorial service expenses
- Greater in-transit inventory carrying costs
It is important to weigh these challenges against the obvious labor cost benefits of moving production offshore.
- Trade level fluctuation
- Carrier consolidation
- Security risks
- Shifts in regional sourcing
All the above challenges have a direct impact on the capacity, flow, and cost of global freight.
Key Logistics Channels
- Transaction channel activities: Terms of trade, Terms of payment.
- Communication channel: Maintains visibility and control on freight as it moves.
- Distribution channel: Manages disruptions and visibility problems by effectively choosing the mode, carrier, and route!
Terms of Trade (Incoterms) and Payment Terms
Shows where the exporter’s responsibilities end and where the importer’s responsibilities begin.
A set of harmonized selling terms is set by the International Chamber of Commerce (ICC), widely known as Incoterms (legal and approved rules of transportation). (13 incoterms in 2000, 11 in 2010, New revision coming 2020)
Payment Terms:
- Cash in advance: Favorable to the exporter.
- Letter of credit (LC): Ensures exporters get paid and the importer receives the goods as expected.
- Sight draft: Exporters retain the title until the shipment reaches destination and payment is made.
- Time draft: Exporter extends credit to the importer.
- Open account: Favorable to the importer; goods are available before payment.
Role of 3PLs
3PL is a company’s use of third-party businesses to outsource elements of the company’s distribution and fulfillment services.
Actors: Logistics service providers. Services: Logistics (3PL contact logistics, management of complex Supply chain).
Advantages and Disadvantages
Advantages: Cost savings; Convenience; Understands regulations; Handles customs issues (lost shipment, tracking ability, fees); More capacity than individual shipper; Less up-front cost for the shipper.
Disadvantages: Loss of control over shipping functions; Loss of relevant market knowledge; In some cases, in the long-term the 3PL option may be more expensive.
Mode, Carrier, and Route Selection
Model; Decision criteria:
- Product characteristics – size, durability, value
- Modal service capabilities – transit time, reliability, accessibility, capacity, safety (TRACS)
- Supply chain requirements for speed, service, cost
Decision must also align with corporate strategy, control risk, and required level of customer service.
Carrier: Geographic coverage, average transit time, reliability, technical capabilities, equipment availability, product protection, carrier’s financial stability.
Route: Demand, Distance, Weather, Safety, Government Regulation.
Forward and Reverse Logistics
Forward Logistics (F): Process of planning, implementing, and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements.
Reverse Logistics (R): From the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
Difference Between Forward and Reverse Logistics
Forward Logistics (F): Forecasting relatively straightforward, One to many distribution points, Product quality uniform, Destination/ routing is clear, Pricing relatively uniform, Importance of speed recognized, Inventory management consistent, Marketing methods well known.
Reverse Logistics (R): Forecasting more difficult, Many to one distribution points, Product quality not uniform, Destination/ routing is not clear, Pricing dependent on many factors, Speed is often not a priority, Inventory management not consistent, Marketing complicated by several factors.
Why Do We Need Reverse Logistics?
Reverse logistics provide a way to extract the maximum value from products at the end of their life cycle. This includes the ideas of recycling where possible, repairing when it is plausible, among other ideas to extend the product’s lifecycle.
Common Reverse Logistics Activities
Product: Return to Supplier, Resell, Salvage, Recondition, Refurbish, Remanufacture, Reclaim material, Recycle, Donate, Landfill.
Packing: Reuse, Refurbish, Reclaim material, Recycle, Salvage, Landfill.