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Freight, Logistics, and Specialized Transportation Issues for Import/Export Managers

Until we have Star Trek capabilities and can move things through space electronically, all freight must move physically from point A to point B. That is what we refer to as “logistics.”

Managing logistics in the import/export trade is critical because shipping costs and shipping efficiency will determine the bottom-line competitiveness of the transaction. This chapter dissects all the material one needs to know about managing import/export logistics and obtaining great value for all of the external services necessary to move products internationally. Specialized international transportation situations are reviewed with an outline of solutions and options.

AVOID THE TEN PITFALLS OF THE GLOBAL SUPPLY CHAIN

With over thirty years of international trade experience, I have been witness to numerous and repeated errors that sales, purchasing, and global business executives consistently make.

Avoid the following assumptions:

1. I have no personal liability.

The reality is that there is significant personal liability for individuals who operate in global supply chains.

U.S. government enforcement agencies, such as but not limited to the following, will prosecute both organizations and individuals who are seriously out of trade compliance with their import and export regulatory responsibilities:

Department of Justice

Customs Border and Protection

Departments of State, Commerce and Treasury

Bureau of Alcohol, Tobacco and Firearms

Department of Homeland Security

United States Department of Agriculture and the Food and Drug Administration

While criminal prosecution is a rare occurrence, it does happen every day in the supply chain, somewhere in the world of international trade.

2. The FOB term is always a safe Incoterm to utilize.

The FOB Incoterm has three deadly areas of concern:

Its use in domestic trade

Its gray area in the loading process

Its ambiguity when the point in time responsibility and liability shift from the seller to the buyer (exporter to importer)

Its Use in Domestic Trade

In domestic trade in the United States, the Uniform Commercial Code of Practice (UCCP) currently (though in contention) utilizes the FOB term as a “term of sale or purchase,” where there are two primary options—FOB origin and FOB destination.

With UCCP, FOB is defined as follows:

1. Uniform Commercial Code › U.C.C. - ARTICLE 2 - SALES (2002) › PART 3. GENERAL OBLIGATION AND CONSTRUCTION OF CONTRACT

§ 2-319. F.O.B. and F.A.S. Terms.

(1) Unless otherwise agreed, the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which

(a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier; or

(b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article (Section 2-503);

(c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323).

The UCCP Term allows any mode of transit or conveyance.

Under Incoterms 2010, it is defined as follows:

“Free on Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

This is then designed to cover for ocean and inland waterway only. Thus, a confusion takes place when the FOB Incoterm 2010 is utilized in domestic traffic.

Keep in mind that a huge amount if not a clear majority of domestic commercial transactions are sold or purchased on a FOB basis and moved by truck, rail or air. This would be ok, if the FOB Term was the UCCP intent and not intended utilization under Incoterms 2010.

It’s a Gray Area in the Loading Process

In the Incoterms 2000 and prior, the FOB transferred risk and cost once the goods passed the ship’s rail.

This factor was changed in the 2010 Edition of Incoterms. The term now reads, “passes when the goods are on board the vessel.”

But it does not clearly define “on board.” Is that when the goods are placed on the deck, in the hold, not yet secured, or secured?

We have a case in our office now where a U.S. exporter sold a huge piece of equipment, 25 tons, eleven million dollars in value, to a customer in Europe. It was going to be shipped via ocean, secured in a cargo hold under deck.

During the loading process, the goods were being lifted on board by a crane and longshoreman crew. In the handling, the equipment was laid down on the deck of the hold several times, while the longshoreman positioned the freight.

In that repositioning process, the freight was damaged. The issue now is who is responsible, based on the Incoterm of “FOB Port Elizabeth”—the seller or the buyer. Were the goods “on board” when they were damaged? The maritime judicial system will eventually resolve that issue, and a court precedence will be established.

But today there is an ambiguity in defining “on board” in the FOB Inco-term.

Its ambiguous at what point in time responsibility and liability shift from the seller to the buyer (exporter to importer).

In the details of how the FOB term is explained in the bylaws,

B5 The buyer bears all risks of loss and damage to the goods from the time they have been delivered as envisaged in A4 (on Board)

a) The buyer fails to notify the nomination of a vessel in accordance with A7 (sufficient notification . . . delivery to the vessel on board or to the anticipated vessels facility)

b) The vessel nominated by the buyer fails to arrive on time to enable the seller to comply with A4 (named point), is unable to take the goods, or closes for cargo earlier than the time notified in accordance with B7

Then, the buyer bears all risks of loss and damage to the goods:

(i) From the agreed date, or in the absence of an agreed date

(ii) From the date notified by the seller under A7 within the agreed period, or, if no such date has been notified

(iii) From the expiry date of any agreed period of delivery provided hat the goods have been clearly identified as the contract goods

In other words, on a practical level, the seller delivered the goods to the terminal, carrier, or other agreed-upon named place and the goods were not loaded on board as anticipated for an array of reasons, such as the carriers having vessel timing or loading issues. The seller appropriately notified the buyer that delivery has been made, and risk of loss and damage has passed from the seller to the buyer.

The important aspect to note here is that the buyer expected to take delivery “on board” and now that has not happened, as the buyer will take delivery and assume all risks at a point short of “on board.”

3. Contracts override relationships.

In international trade, relationships trump contracts.

It is relationship that will drive a successful deal and a long tenure. I have always extolled “you can contract out risk,” but you can seriously minimize and mitigate risk by establishing favored relationships that will allow the best opportunity for problem resolution and working out the issues that will likely occur over time and trade.

4. Service providers are the experts in all aspects of the global supply chain.

This is just not so. While a small percentage of service providers are clearly experts, professionals, and aligned with teams of knowledgeable staff, the majority have serious limitations.

While many have expertise to arrange affreightment, pickup, and delivery many

Lack the necessary local connections in all foreign markets

Do not take trade compliance seriously

Do not understand how best to eliminate risk and cost from the supply chain

5. Manage the supply chain reactively.

Most companies talk to their supply chain teams once decisions have been made.

Companies that do not engage their supply chain management teams before purchasing and sales decisions are made are creating a recipe for disaster.

Proactive discussions and “stone turning” to determine the best options for buying, selling, and overseas expansion is contemplated as a “best practice,” with long-term rewards with less aggravation, lower costs, and risk-management options.

6. We have been doing this this way for over five years with no problems.

We hear that a lot.

Just because you have not had a specific problem does not mean you are doing things correctly.

A volcano is not only a problem when it erupts. The problem is underlying, just waiting for emergence. Dealing with it proactively, anticipating consequences is a much better option.

Potential problems along with potential betterments must be proactively chased to assure you do not have serious issues and are doing everything possible to reduce risk and cost and/or make business process improvements.

7. It was handed to the carrier, so it must be “on board.”

Tracking and tracing needs to be accomplished at a very detailed and exhaustive level.

Just because you have confirmation that a carrier has received freight does not assure that it made it on board the vessel, aircraft, railcar, or truck.

You need affirmation that in fact the goods have made it on board the conveyance with an updated ETA, followed up with daily frequency, in case of any unanticipated delays, which occur all the time.

8. We always check the Denied Parties List.

Many international executives believe their companies are consistently checking and reviewing the various lists making up the “Denied Party Screening” regulations for importers and exporters.

In many years of auditing companies engaged in global trade, only a small percentage is fully compliant with the review, checking, and compliance responsibilities associated with Denied Party Screening.

9. I am the ultimate consignee on these goods coming from overseas but not the importer of record.

Many companies who are the recipients of imported merchandise who are not participative in the import process believe they have no import responsibilities.

That is totally incorrect! Customs (CBP) has the right to evaluate any import situation and determine that the ultimate consignee could be considered the importer of record and therefore has all the responsibilities as the importer of record.

This would then require adherence to all import regulations, such as HTSUS, documentation, and record keeping.

10. Domestic packing will work for my international shipments.

Claims for loss and damage on international shipments occur every day, and a major cause is inadequate packing, marking, and labeling.

Just check with any marine insurance companies. They will advise of the frequency and the severity of claims occurring on import and export shipments directly attributed to inadequate packing marking and labeling, which could jeopardize marine cargo insurance coverage as an implicit or explicit warranty.

The balance of this book will provide solid recommendations on eliminating these ten common issues facing companies who engage in global trade as importers and exporters.

UTILIZING SERVICE PROVIDERS

Freight forwarders and customhouse brokers are excellent partners to engage to assist corporations in managing their supply chains. They can be all things to all people, or one can be selective on the services they offer. Irrespective of the extent, they can be of service in the global supply chain. They can make or break your import and export operation. They typically have expertise, qualified personnel, and resources to extend to the principal importer and exporter to make your supply chain function in a timely, safe, and cost-effective way.

The balance of this chapter goes into detail describing what services they offer and how best to use them to obtain a competitive advantage.

IMPORT/EXPORT TRADE: FIVE KEY AREAS TO GET THE BEST FROM YOUR FORWARDER

The quality of your freight forwarders and the delivery of the international services they provide can make or break your export operation. Even though they sometimes seem to be nothing but a necessary evil, forwarders can be your best ally in mitigating the hazards of world trade and assuring successful and profitable international transactions.

Like other key vendors, freight forwarders need to be managed and treated as partners with mutual goals, common direction, and a full understanding of what each party brings to the relationship and ultimately the benefit to each other through the association. Seven key points in this regard are presented in this chapter:

1. Selection

2. Logistics consulting

3. Pricing

4. Value-added services

5. Setting performance standards

6. Trade compliance management capabilities

7. Technology prowess

Selection

There are several resources to help you determine what forwarder to choose:

Go to other shippers for referrals.

Ask carriers for recommendations.

Go to the National Association of Customhouse Brokers and Forwarders.

Check the Export Yellow Pages.

Check the American Export Register.

Refer to local trade and industry associations who provide recommended service provider guidelines.

Refer to local USEACs, U.S. Export Assistance Centers, and DOC.gov, who have service provider databases in their local markets.

Potentially, there are another dozen resources to turn to, such as another shipper who has firsthand experience. To determine if the freight forwarder is suited to meet your needs, you must set up selections criteria.

For example, a large shipper may have a fully staffed traffic department and may be fully capable of executing documentation and negotiating freight rates. In this case, a freight forwarder might be needed for a niche-type activity, special tasks, and overall logistics consulting.

However, a small shipper may require the freight forwarder to execute every document, from the pro forma invoice, the export declaration, and the certificate of origin to the bill of lading, and so on.

It is essential to note that even some very large shippers have decided to purchase all services of a freight forwarder in lieu of establishing a fully staffed traffic department. At the same time, some qualified small shippers prefer to do much of the work themselves. You need to survey your needs, which then become the criteria for the selection process.

Freight forwarders vary greatly from one another in skills, capability, and delivery of services. Some forwarders are specialists on certain trade routes, specific commodities, degree of value-added services, and so on. Some shippers use two or more forwarders for different areas.

We suggest that shippers create a list of criteria, which would reflect the shippers’ needs. This should be given to the forwarder to obtain a proposal. The proposals from various forwarders will serve as a gauge for evaluation of their services in the areas you have identified to be important, such as

Documentation, rating, carrier selection

Post selection, packaging, insurance, warehousing, electronic data interchange (EDI)

Knowledge of your product

Logistics consulting

Customs clearance, labeling, hours of operation, rate negotiation

Export compliance management

In-house education and training

Logistics Consulting

One of the most important services a forwarder can provide is advice and counsel. Most shippers would probably tell you that the single most important factor in freight forwarder selection is their experience, resources, and general working knowledge of international trade. The freight forwarder can make significant contributions to your overall sales, marketing, pricing, and distribution choices. If you typically sell on a cost, insurance, freight (CIF) basis and are now venturing into a totally new market, your freight forwarder, based on previous experience, may advise you that the claims experience is horrendous in the importer’s airport of entry or port facility and that you should amend your terms to a Cost & Freight (C&F) basis. This obviously will affect pricing and may be a key factor in making the transaction profitable in the long run.

Another example may be that you are experiencing a frequency of damage claims via a “mode” of transit. The forwarder might guide you to changes in packaging that would better protect your cargo and lead to an improved loss experience and more satisfied customers.

Pricing

Pricing can vary among different forwarders. We suggest that pricing always be obtained up front. In some situations, it may be impossible to estimate costs exactly, but in most cases a forwarder can provide a fairly accurate estimate. Two basic elements of a freight forwarder’s charges are fees and carrier costs.

For ocean freight, you will typically pay what the forwarder pays to the carrier except for consolidations, non-vessel common carriers (NVOCCs), and project work where certain discounts or surcharges may apply. The forwarder will typically earn a commission in ocean freight and will charge handling fees.

In other modes of transit, such as by air, you will pay what the forwarder charges you and not necessarily what the forwarder pays the carrier. Therefore, the rates in international airfreight tend to be more evenly priced.

Fees will vary among forwarders. Obtaining shipping information, contracting overseas agents, follow-up, faxing, negotiating rates, and preparing documentation all have costs attached. Following is a shipping cost breakdown checklist.

DOMESTIC INVOICE TOTAL–ADDITIONAL DOMESTIC COSTS (MAY BE PART OF THE FORWARDER’S FEE)

Warehousing

Inland freight

Export packing

Loading changes

SHIPPING AND DOCUMENTATION

Consularization/notarization

Export declaration

Export license

Certificate of origin

Packing list

Bills of lading

SGS inspection

Insurance certificates

ISF filings

Health/sanitary certificates

Miscellaneous

BANKING AND FINANCE

Letter of credit

Sight draft

Miscellaneous

FREIGHT FORWARDING FEES INSURANCE

Foreign import costs

Customs clearance

Local delivery

Import license

Fulfillment, warehousing, and distribution

Miscellaneous

Value-Added Services

A forwarder can provide an array of services that may be considered standard or value added. For example, you may be entering a new market in a different country. In your analysis, you will need to be supplied with a significant amount of data. Your forwarder may be able to review your needs and provide feedback in areas such as

Export shipping and mode options

Costs of shipping

Documentation requirements

Packaging considerations

Warehousing and inland transit options (third-party logistics)

Legal and government restrictions

Labeling requirements

Distribution systems

Compliance management

Another potential value-added service is providing EDI capability. This basically entails the retrieval of manual shipping data in an automated format, production of documentation, and tracking in an automated mode. The range of data, equipment availability, and report formatting may vary, but the bottom line is that the EDI capability needs to reduce costs and provide shipping data in a timely manner and comprehensively to be considered value added.

Other examples of potential value-added services are

Capability to handle hazardous materials

Export packing expertise

Warehousing capabilities

Expertise in marine exposures and coverages

Comprehensive office and agency system

SETTING PERFORMANCE STANDARDS

We are strong advocates of making sure that freight forwarders keep their promises and maintain high quality standards leading to cost-effective service and on-time performance.

Following are five steps that can be used to maintain the forwarder’s performance:

1.Keep all commitments, quotes, proposals, promises, etc., in writing.

2.Allocate time frames to all jobs. Maintain a diary and follow-up schedule to determine responsiveness and accuracy.

3.Have all jobs quoted. If there is no time to quote, then have pricing made available as soon as practical.

4.Have your forwarder submit annual stewardship reports and bring in competitors from time to time.

5.Demand regular meetings with your forwarder. Gain access to senior management. It is also recommended that you meet with all staff and operating personnel and make sure they are familiar with your account, your needs, and the promises made by the salespeople. Knowing who the operation personnel are is key, as they sometimes become far more important to you than the salesperson.

The effectiveness of the forwarder will partially depend on how the exporter manages this valuable vendor relationship. The forwarder should be viewed as a partner who can be part of or comprise your entire logistics management team. When used effectively, the forwarder can maximize profit, mitigate risk, and spearhead you into successful exporting.

Following is a comparison checklist for choosing freight forwarders. Establish criteria that are specific to your operation and prioritize the salience and importance.

Service areas

Scope of expertise

Ocean, air, truck, and rail

Quality of sales and operations personnel

Location nearest your main office

Pricing

Insurance availability and fees

Warehousing and fulfillment capability

Your own or third-party trucks

EDI capability

Imports and exports and domestic

Export documentation

Tracking capability

Handles small packages

Handles time-sensitive freight

Consulting services

Import/export compliance capabilities

In-house training and education

Packaging, marking, and labeling

Payment terms

Will lay out duties and taxes

Are you a “small fish in a big pond”?

Who will service your account/from what office?

Sales versus operations personnel

Office and agency network

Years in business

REFERENCES

Trade Compliance Management

Following the events of 9/11, trade compliance management has become critical element of any global supply chain for both principal importers and exporters, along with carriers and all levels of service providers.

Freight forwarders and customhouse brokers all become key extensions of a global supply chain and offer a very valuable service.

If they are not trade compliant, neither are you, as the fiduciary connection is held tightly by all government agencies.

Service providers need to be held to the same standards you hold internal supply chain operations, and the amount of services they provide and intensity of the overall relationship will impact your level of due diligence, reasonable care and supervision, and the control standards you apply.

At the end of the day, your sensibility about trade compliance management in your service provider relationship must offer a high degree of comfort and security.

TECHNOLOGY PROWESS

While some industry professionals might consider technology a “value add,” in 2017 and beyond it will be as important as any function of the service provider to offer as a necessary strength and critical capability.

The ability to interface into mutual operating systems for the exchange of data, track and trace, create and file documentation, interface with government agencies, and so on will all be important hallmarks of technology prowess.

Proprietary systems will provide certain advantages over “off-the-shelf” third-party IT solutions.

USE OF CONSOLIDATORS IN EXPORT TRADE: A VIABLE OPTION FOR OCEAN AND AIRFREIGHT

Larger ocean shippers, with over one hundred trailer exchange units (TEUs) (twenty-foot equivalent unit, twenty-foot container) per annum are typically at the lower end of the scale but have minimum clout to negotiate directly with steamship lines for rating discounts and relief from standard tariffs. The more volume, the more clout you will have in reducing ocean shipping costs. Large exporters with more than one thousand TEUs are in a great position for favorable ocean tariffs.

Many ocean carriers will only price shipping starting at twenty-feet and forty-feet units. Many will not even look at less than container load (LCL) freight. This places the smaller, less frequent shipper at a disadvantage to larger more frequent shippers. Those shippers with small shipment (LCL) sizes have fewer options and will typically pay more. Sometimes an LCL shipper will pay more for a third of a container worth of freight than for the whole container at a full container rate. A good example, a shipper from San Francisco has twelve metric tons of dried vegetables to ship from Port of Oakland to Prague. The LCL rate is $242 per megaton, or $2,904. The twenty-foot container rate holding approximately twenty-two megatons is only $3,900, or a difference of $1,000. Add another three megatons and it would be better to buy the full container. Of course, dimensions would play a role, but this example is for demonstration purposes only.

Shippers need to investigate this, as it may be more cost effective and certainly less risky to ship the full container load (FCL) in certain circumstances. The shipper must become an educated consumer.

The more practical option is to develop a relationship with a forwarder who accesses an NVOCC or one that is an NVOCC. NVOCCs licensed by the Federal Maritime Commission (FMC) act as consolidators, accept LCL freight, and can offer savings to smaller, less frequent shippers that often are not available dealing directly with the actual carriers.

The NVOCC can take the volume of all of its shippers and negotiate with the clout of many. It can then predict greater volumes with the steamship lines arranging for tariff relief. These discounts can then be passed off in proportion to the small shipper. The NVOCC becomes like a buying cooperative or purchasing group that works on the concept of clout in negotiation. The clients of the NVOCC benefit as the membership grows and the management becomes stronger.

Three quality NVOCCs are Direct Container Line, Sea Lion Shipping, and Rose Container Line.

One must be very careful when choosing NVOCCs, as there are many “fly-by-night” operators in the industry. NVOCCs become a direct extension of the carrier, offer their own bills of lading, and accept certain liabilities, as if they were the actual steamship line.

When choosing an NVOCC,

Make sure you get referrals and credit references. Many NVOCCs have expertise in certain commodities or trade routes. Make sure the one you choose meets your needs.

Make sure they carry the proper liability insurance.

Get all pricing and quotes in writing.

Identify the specific routing. To save money, many NVOCCs will divert freight, causing delays and adding unnecessary risk to export cargo.

Sea Lion Shipping, Rose Container Line, and Direct Container Line have good reputations and offer competitive pricing and quality service.

NVOCCs can often provide inland warehousing, documentation, and logistics/fulfillment services directly or in conjunction with their forwarding entities or other carrier relationships. NVOCCs and consolidators who specialize in various commodities, specific geographic regions, or trade routes can be valuable in providing export transportation advice and counsel. Sea Lion Shipping, for example, has expertise in chemicals, perishables, contract freight, and cargo with special needs. Econocaribe Consolidators specializes in consolidations to the Caribbean and Latin America.

Most ocean gateways, like New York, Miami, Los Angeles, and Houston, are homes to many Consolidators/NVOCCs. Local port authorities, freight forwarders, world trade clubs, and international associations can be excellent referral sources for NVOCC options.

Some value-added services that these entities can provide are as follows:

Inland trucking

Warehousing

Pick and pack/fulfillment

Marking labeling

Consolidation/repacking

EDI, exchange of information, and tracking of freight

Access to freight-forwarding services

Worldwide agency network

Hazardous material or perishable capability

The concept of consolidation and NVOCC services also extends to airfreight. Companies like ACI and Air Consolidators International, based in New York and Los Angeles with satellites in other cities, can offer airfreight shippers competitive pricing, particularly to smaller shippers and those who ship less frequently.

Typically, these air consolidators will receive freight at air gateways like New York, Miami, and Los Angeles, and certain days of the week will move freight to a particular city in a foreign country. Their move is typically on an airport-to-airport basis, with the terminating airport city being a major inbound gateway to that country, not a smaller inner city point. Examples would be in Australia, Sydney; in Germany, Frankfurt; in Brazil, Sao Paulo; and in China, Beijing or Hong Kong.

U.S. importers use airfreight consolidators on inbound imports frequently and with success.

Airfreight consolidators will typically book space in advance based on prior experience of freight volumes. They will usually obtain competitive rates. This space then becomes available to the clients of the airfreight consolidator as required, with some portion of the rate discount passed back to them. Often freight forwarders with high volumes of airfreight will arrange their own consolidations as needed or prearrange consolidations for predictable clients and trade routes.

Consolidation and the effective use of NVOCCs can be a lucrative method to control exporting costs.

POTENTIAL INCREASES IN AIRFREIGHT RATES

In recent years, many exporters saw a decline in the cost of shipping goods by airfreight. Competitive pressures afforded such a situation and benefited those needing to move international freight by air.

All indications as we enter 2017 point to a continued rise of up to 6 to 8 percent, depending on trade routes and carriers. Many U.S. carriers like American, Southwest, United, and Delta have taken steps to initiate rate increases on certain of their international trade routes. Foreign carriers like Alitalia, Lufthansa, British Airways, Air France, ANA, and KLM have hardened their pricing structures, and the trend will continue during the next 12 to 18 months. Integrated carriers like United Parcel Service (UPS), DHL, and Federal Express have also responded with higher rate structures and tariffs.

It is important to note that most airlines have formed alliances with synergistic carriers and increased their overall freight capabilities. The size of some commercial aircraft has been downsized, and this has been a factor in the overall freight market.

Freight forwarders, who often act as the intermediary between exporters and the actual airfreight carriers, are witnessing increases of 3 to 6 percent and higher in some areas. In consultation with their clients, they are preparing for this trend to continue well into 2017. Following is a discussion of the reasons for this expected increase.

In the period from 2014–17, ocean freight and airfreight rates were generally in decline, particularly in the 2015–16 timeframe. This had a lot to do with the economy, carrier capacity, and shippers placing severe competitive pressure on carriers and service providers.

Rate decline had offered a direct impact on the bankruptcy of the Korean Ocean Carrier Hanjin in August 2017.

Many other carriers are also having difficult financial times, and there is a “wait and see” attitude to see if more fall.

The general sense is that rates will begin to increase going into the peak season and following the year-end contract renewals from February to April.

We suggest that larger companies budget increases as much as 6 percent and all others as much as 10 percent.

There is a global increase in airfreight utilization that stresses current airfreight capacity. Some trade routes—the United States to Europe and the Far East are two good examples—are experiencing rate increases because of supply/demand issues. Why such demand? There are many factors. One factor is the growing need for speed. Everyone wants everything today. As the world shrinks, so does the supply chain process. UPS used to deliver from the United States to major European cities on a two to three-day basis. Five years ago, this was acceptable. Now clients want delivery the following day by 8:30 a.m., and many carriers can now respond to this demand.

The practice of “just in time” (JIT) purchasing, production, and inventory management will sometimes reduce the inventory and distribution process, which will result in a demand for quicker shipping requirements that only airfreight can provide.

“Lean” business practices developed over the past ten years also dictate the utilization of faster shipping models over the costs of warehousing and storage, where applicable.

World trade is on the rise, and all modes of transit are benefiting, particularly airfreight. The elimination of tariffs (General Agreement on Tariffs and Trade [GATT]), the creation of new trading alliances (North American Free Trade Agreement [NAFTA], Mercosur, Euro, and others), and the strength of the U.S. dollar all have been favorable for exports for U.S. companies. Should the new Trans Pacific Partnership (TPP) be re-considered by the Trump Administration, by Congress, this too will impact global trade in the Far East to U.S. trade lane.

U.S. products are in great demand in overseas markets. Contrary to popular opinion and a misguided media, most international businesspeople know that U.S. products do well in overseas markets. Airfreight has benefited from this, placing a greater demand on airfreight services and, in the meantime, causing backlogs, delays, and increased tariffs.

Some airfreight analysts point to the reduction in cargo capacity as another reason for rate increases. The reality is that the airline industry, being “passenger oriented” first and “cargo oriented” second, has reduced the size of fleets and the individual carrying capacity of the planes. There used to be more than twenty 747 jumbo jets from JFK airport to Europe each night. Now there are fewer than twelve, a 40 percent reduction. Newer planes also carry less cargo than the jumbo 747s.

Airbus has enhanced freighters called A330s. Their overall impact has added capacity, but not sufficient to cover demand, particularly during peak seasons.

During the past five years, airlines, along with some dedicated freighters, have reduced their fleet sizes and cargo capacities, causing the system to stress. Many airlines have recently upgraded their aging fleets, which has caused significant capital expenditures. They are now attempting to recapture these costs.

The additional cost of fuel, which has temporarily decreased over 15 percent in the past twelve months, still is a huge component of freight costs, and the general sensibility will begin to rise in 2017. In conjunction with this, many trucking companies have passed on their fuel cost surcharges. Keep in mind that these factors will affect airfreight because there is typically an inland leg to all international airfreight shipments.

These factors have shared in causing airfreight rates to rise. Those who have been planning or budgeting responsibilities should be prepared for increases ranging from 3 to 8 percent through 2017. But all is not lost. As in all global trade issues, there will be some exporters who might see airfreight decreases or at least stability and fare better than others. There are things one can do to minimize the effects of this global airfreight rate increase trend.

Always keep in mind that freight costs are negotiable and some larger shippers have huge advantages in moving cargo cost effectively by air, truck, sea, and all other modes of transit.

Market your shipping needs. Bring in competition. You will be amazed by the results. While loyalty and service are critical components of international partnerships, they can always be factored into the negotiation process.

Look to maximizing your clout with one or two carriers. Many of the worldwide carriers like United, American, Delta, Lufthansa, British Airways, and Air France can service the world through their main hubs, if not directly then through their line haul carrier agreements with other airlines. Placing all your business with a “main” air carrier will provide clout in the negotiation process. Many carriers have formed partnerships to enhance their service parameters. Examples of such arrangements include Delta and its partners. Now the shipper in Chaska, Minnesota, can route cargo with Delta to Bombay. Northwest does not go to Bombay but will forward the freight to Detroit (one of its hubs) and then through its partnership agreement with another airline will forward the freight to Amsterdam for eventual on-forwarding to Bombay. It’s a “win-win” for everyone. The shipper can drop in Chaska and have its freight move all the way to Bombay, under one bill of lading, with one source for tracking and tracing. Another example is that the exporter in Detroit, Michigan, shipping freight to Jakarta, Indonesia, can now drop its freight in Detroit with Delta. Delta will route it to Minneapolis, where it will be transferred to its worldwide partner, who through its hub in Amsterdam will on-forward to Jakarta. Such arrangements work well for both unsophisticated and more experienced exporters.

Work with airfreight consolidators who can often provide competitive rates not available directly with the carriers, particularly for smaller shippers. Consolidators typically target particular markets and trade routes, and you need to know this. Your freight forwarder holds the key to these contacts.

Look to specialized airfreight forwarders who will allow access to their airline contracts, typically at better rates than you might be able to obtain on your own. Keep in mind that larger forwarders maximize their clout with carriers based on commitments of the “total business” of their clients’ exports.

Combine your total freight purchasing with third-party logistic providers. Combining all your transportation purchasing with these providers might provide greater strength in negotiation and economies in the entire distribution process.

Manage inventory, purchasing, and international sales in a way that will take advantage of other modes of transit, like truck, rail, or ocean, that might provide lower freight pricing. Airfreight for shipments more than five hundred pounds should always be a last resort and saved for occasions when no other options exist.

Analyze option gateways, like Miami and Dallas, that might provide lower airfreight rates than other gateway cities, like Los Angeles, New York, and Chicago. Sometimes the cost of moving the freight by truck to the gateway plus the airfreight rate will be less than dropping at the nearest local airport or international gateway.

These are but a few of the options to consider when dealing with the problem of potential increasing airfreight rates in 2017 and 2018. Keeping these options in mind as rates rise will provide the best hope for dealing with the problem while maintaining profitability and growth.

MANAGING BANKRUPTCIES IN INTERNATIONAL SHIPPING

The recent events surrounding the Hanjin bankruptcy has resonated, with serious negative overtones impacting global supply chains in almost every industry and worldwide.

These include vessels and cargoes being seized, crew members facing arrest and prosecution, senior executives being pursued by government authorities, and freight being upheld from meeting delivery and destination requirements.

In my consulting practice, we faced numerous and intense concerns raised by purchasing, import, traffic, and supply chain executives who were dealing with major delays and potentially more serious cargo issues in their import and export operations.

Our recommendations provide a blueprint for what steps a supply chain professional can take when this scenario arises. Hanjin was not the first and will not be the last serious bankruptcy in the world of international business.

Have a plan, as follows:

Assessing the damage is the first step to mitigation. Evaluate where your shipments are and which ones may cause negative impacts. Prioritize which shipments require immediate attention and which ones are not of looming concern.

Communicate the issues internally to all the stakeholders. Even though it may be embarrassing that you are facing this concern, a direct, no-nonsense approach to your colleagues and vested interests, including customers, will always prove to be a more successful “take the high road” tactic with numerous benefits. This will allow others with vested interests to take necessary action as early as possible.

Mitigate your circumstances. Once your assessment is done, create a strategy and action plan that can mitigate your overall issues. Moving freight with other carriers, pulling freight where possible, and airfreighting small balances to fulfill immediate needs are but a few mitigation techniques.

Read the documentation. Reviewing the back of an ocean bill of lading to determine your rights and the carrier’s liabilities, something you would do “on a cold and lonely night, while sitting on the john” becomes a necessary evil and component of the overall risk management evaluation and assessment process.

Bills of lading, Incoterms in the sale or purchase, POs, commercial invoices, carrier contracts, forwarding and brokerage agreements—all will impact responsibility, liability, and your eventual course of action.

Speak with an attorney. At an early point, if you have an internal counsel, they should be advised of the situation. The nature of this maritime event is cause for access to maritime and admiralty expertise, often obtained from a few of the specialty law firms engaged in these international and global trade arenas.

LOSS PREVENTION

Many supply chain executives proactively mitigated their situation with Hanjin, long before the actual bankruptcy event on August 31, 2016.

They followed sound supply chain principals of due diligence, reasonable care, and proactive engagement, as follows:

Manage your carrier contracts. Many supply chain executives secure a competitive and comprehensive freight contract with carriers and service providers. But it does not end there.

You have responsibilities to stay abreast of industry events, circumstances with critical supply chain partners, and supply chain information flows.

While many were caught by surprise on August 31, others anticipated the potential of the event and began moving freight to other carriers late in the spring. Reading the daily reports and monthly columns in a magazine like the American Shipper is a critical component of any prudent supply chain’s executive information flow.

Also, understand at a “granular level” your and their responsibilities and liabilities in all the bills of lading, contracts, and agreements you have signed—proactively and not just once a potential problem has arisen.

Keep in mind that short-term delays are not the only problem. Seizures can create significantly extended delays, and the more time freight sits “idling,” the more it is exposed to greater threats of loss and damage from water, handling, theft, and pilferage.

Diversify your supply chain carrier options. Many import and export executives have found that diversifying their carrier options and spreading the freight and therefore the risk over several variable contracts may offer a great risk management strategy.

Create a contingent strategy. Executives who proactively assess potential threats or conduct a “SWOT analysis”—strengths, weaknesses, opportunities, and threats—will be in a better position when disruption occurs.

This affords a futuristic profile of potential supply chain disruptions and then allows management to create contingent strategies so that if they occur, you already have a plan of action that will fold out and seriously mitigate the impact of any potential supply chain problems.

The Hanjin bankruptcy was considered one of the largest in all global trade, with current and futuristic negative consequences to supply chains all over the world. Rumors tell of other carriers with similar financial woes.

Those supply chains with aggressive mitigation strategies will have the best chance to survive these types of events with the least amount of disruption.

Those supply chains that proactively create risk management programs that prevent these disruptions from gaining traction before they even occur are often in the best positions to provide resolution long before any negative event.

It becomes a choice—put your head in the sand and deal with what comes your way or manage risk and maximize the best opportunity to protect your supply chain for growth, profit, and successfully run domestic, import, and export operations!

NEGOTIATING INTERNATIONAL FREIGHT RATES

Achieving the Skills to Negotiate Global Transit Costs

Exporters and importers who face the reality that the better they negotiate their freight rates, the more competitive their products will be, will have greater opportunities to make higher profits.

Rate negotiation is an art. It usually takes years of experience. Viewed as a purchasing management function, it can control the ultimate success or failure of any export operation.

Regardless of who pays directly for the freight costs in an export sale, the customer will eventually pay for it. By controlling the cost, you will favorably affect customer satisfaction. Because you get what you pay for, let us consider the first step.

There is an array of services that transportation service providers and carriers will provide:

Documentation

Export packing

Door to door

Inland transit

Licensing

Insurance

Routing

Storage

Consolidation

Loading/unloading

Rate negotiation

As the exporter/importer, you must decide what services you require, what services you will keep in house, and which ones you will have your carriers provide. Once these are determined and you have let the carrier know, then you have taken the first step in the negotiation process.

Determine the Field of Vendors/Suppliers

The second step is a difficult one because personal and long-term relationships will come into play. We suggest you choose one or two forwarders and give them access to the market. You may want to bring one consolidator and/or non-vessel operating common carrier (NVOCC) into the bid process. And you may want to go to one or two carriers directly. This will afford you access to the broadest canvassing spectrum of the available market.

Keep in mind, however, that all this requires an allocation of resources, time, and effort. If you have a limited availability of all three, you may want to only go to one or two forwarders, affording them, with direction, the access to all market options.

Experience has shown that all these options will maximize your opportunities for the best rates.

Provide Quality Information

It is key that you provide both quality and up-to-date shipping information. We recommend the following as basic data:

Specific descriptions of products (provide schedule B numbers)

Advise points of origin and times of availability

Identify packaging and unitization (pallets, slip sheets, D containers)

Give net, tare, and gross rates

Give dimensions, including unitization pieces (i.e., pallets)

Identify all shipping needs, who is to prepare documents, insurance required, clearance needed

Advise on any tangible information (such as perishable, fragile, hazardous)

Provide all pertinent consignee and delivery information (such as address and telephone number)

Any special documentation requirements

Advise terms of sale and payment

Taking the time and making the effort to provide good shipping information will pay off in multiples, as vendor efforts will not be wasted in renegotiations or correcting misdirected quotes.

Secure Everything in Writing

It can be very frustrating to have billing disputes between exporters and carriers after freight has been shipped. For this reason alone, we recommend that all quotes be put in writing. This prevents future headaches and can limit litigation potential when disputes occur.

In the best scenario, it is recommended that a “quote sheet” be established between the exporter and the transportation vendor, whether it be a carrier, forwarder, or otherwise. What this entails is to have a profile of all the shipping data, as outlined previously, provided to the carrier by the exporter. This immediately begins the process of vendor accountability because it cannot be argued as to what the carrier based the quote on. We also recommend that this is transferred via EDI, email, fax, or other electronic means. This affords timely and cost-effective communication and ease of inventorying the massive amounts of “paper” associated with an export transaction. It should also contain a reference number for current and future identification and tracking.

The transportation carrier or service provider should have a system in place to acknowledge the quote request and advise the time frame for response, ask additional information, if required, or obtain edification on any area requiring it.

The carrier would then send the quote back electronically. This closes the circle of accountability, as the exporter has the quote in “black and white,” as does the carrier. The room for error or misunderstanding is minimized. The billing should match the quote.

While setting up these systems causes pain at first, has a learning curve, and usually comes with employee reluctance, in time they usually work well and provide richer rewards than the efforts expended.

Contingency Plan

In international shipping, no matter how well you prepare or plan, there are always going to be some variables that will come into play for which you will have difficulty budgeting. After years of experience in international trade, one learns about new variables every day. It is one of the things that makes the field challenging.

An example of a cost that might show up after the shipment has been dispatched that would not have typically been budgeted for is waiting time. Trucks or inland carriers dropping off containers at the pier or freight at the airline terminals will give the exporter about one hour to accomplish this. If they are held up by the carrier, they will pass off waiting charges in the range of twenty to eighty dollars per hour. Delays of an entire day could greatly increase the cost of shipping.

Discrepancies might arise from negotiating letters of credit, and a bank will charge fees and penalties to correct the documentation or the letter of credit. There is additional expense in the communication and time delays as the discrepancy is being corrected.

Changes in duties, taxes, or reclassification of cargoes can lead to unexpected costs in international shipping.

Not figuring the differences between actual and dimensional weights causes discrepancies. In LCL freight, the carrier will have a right to charge the tariff rates against the actual or the dimensional weight. If you have an item with a low weight that has bulk, you may be budgeting in the 1,000-kilogram actual weight when in fact the dimensional weight is 1,500 kilograms, adding approximately an additional 30 percent to the shipping charges. This is where total and quality information with pieces, weights, and dimensions must be given to the carrier to minimize the opportunity for this to occur.

In all these areas, it is almost impossible to budget for the expenses. It is recommended that regular shippers develop a slush fund and put a minimum of 1 percent of international sales into it to handle any potential or unexpected costs. If the money from the fund is not used, it can be cleared out periodically and used in the regular flow of operating expenditures.

The Ocean Shipping Reform Act of 1998 (OSRA)

Lower pricing is the “silver” medal, but service can be the “gold”!

As we reflect on regulatory changes that still impact freight negotiations in 2017/18, we can only assume that by now everyone is aware of OSRA signed into law in 1998 and effective as of May 1999, which affected all ocean shippers into the new millennium. As we enter 2017, the impact of this regulation still resonates with importers, exporters, carriers, and service providers.

Many international shippers have already achieved significant benefits in lowering their shipping costs because of the confidentiality features that the new law provides. While saving freight costs is critical to better competitive global sales, there is a secondary benefit of OSRA, which is the ability to freely negotiate service parameters from the ocean carrier and the terms agreed to within the tariff and bills of lading. Gaining competitive advantage in global sales is not only achieved through direct savings in freight costs but now can be achieved through an array of flexible issues afforded under the OSRA, including

Carrier liability: terms and amounts

Positioning of containers and availability

Payment terms

Pricing exclusive of accessorial charges, like the terminal handling charge (THC) and bunker adjustment factor (BAF)

Long-term contracts

Collect freight arrangements

Logistics services

Carrier Liability

Ocean carriers limit their liability in the wording on the bills of lading and tariffs and by law (for example, Carriage of Goods by Sea Act [COGSA], which usually is $500 per package). In addition, when you analyze the exposures or risks for which they are liable, it is evident by these factors along with legal precedence that the carriers are “liable” for very little.

This area can now be negotiated with carriers toward them assuming greater risks or limits. While it is still unclear how litigation might be affected, this entire area is subject to modification and change by the ocean carriers for the benefit of shippers. Holding the ocean carrier to a higher standard of accountability and liability will help to make them perform better because they will not be able to hide under prior defenses. This potentially affords the shipper significant commercial advantages.

Container Positioning

Shippers will be able to negotiate ocean service contacts that will enable them to have containers available where and when needed for better control of inventory and supply chain management timing. World trade is increasing. The ocean carrier capacity to maintain internal support infrastructures of equipment has not kept up with demand. This sometimes stresses the demand requirements of shippers, particularly exporters, to have containers positioned at their facilities on a timely basis.

The more “inland and away from outbound gateway centers,” the more difficult the situation. You may have to arrange container positioning a week in advance or as little as two to three days ahead of loading. With the new law, this can be easily negotiated as part of the overall carrier agreement and containers positioned on a basis that serves your need and availability and not the supply/demand facility of the carrier.

This could greatly improve the management of your outbound export supply chain process.

Payment Terms

Carriers typically held short leashes on exporters’ payment terms, usually due on a cash basis in seven working days and rarely as much as thirty days. Today, with OSRA, you can negotiate the payment terms as part of the overall carrier agreement and obtain terms that meet your internal cash flow needs. Thirty days is a given, and depending on volume and pricing, there is a potential for forty-five to sixty days with more flexible carriers, NVOCCs, and forwarders.

Since the recession of 2008, payment terms of thirty days are provided to only the largest shippers. Most likely, payment on account or very short terms are afforded most shippers of freight.

Service providers acting as an intermediary between shippers and carriers will often offer the thirty-day terms and act almost like a bank in financing part of the landed costs to the benefit of the principal shipper or consignee.

Accessorial Charges

I have witnessed some exporters obtain all-inclusive pricing structures that eliminate the individual surcharge accounted for by certain carriers on a line-item basis, like BAFs, currency adjustment factors (CAFs), Panama toll charges (PTCs), container service charges (CSCs), and THCs. Instead, the carrier provides a pricing structure without these potential additional costs on a line-item basis. This assists with standardization and affords more consistency in establishing shipping costs on specific trade routes.

Long-Term Contracts

Some exporters with long-term projects or lengthy sales contracts might want to consider the possibility of negotiating ocean freight costs for more than a year. Commitments can be obtained from ocean carriers, NVOCCs, freight forwarders, and logistics providers that expand contracts for up to three and five years. Most will allow some flexibility for annual price adjustments, but they are pre-agreed at fixed or standard terms and levels based on reasonableness.

Collect Freight Arrangements

Many exporters struggle when ocean freight terms are collected, as many carriers are reluctant to provide the capability to all service areas or charge exorbitant fees. This is a serious point of negotiation. Carriers now more than ever are willing to provide collect capabilities throughout their service network, and the “collect fees” are negotiable and can be kept at reasonable terms.

Logistics Services

The increased flexibility offered carriers under OSRA allows ocean carriers to become better partners in providing third-party logistics services. Areas like pick ‘n’ pack, fulfillment, packing, warehousing, domestic distribution, and bonded capabilities are but a few of the value-added capabilities being offered more easily.

Ocean carriers within their own infrastructures and with establishied close vendor ties can offer an array of third-party logistics services, completing a very important aspect of integrating the international supply chain process.

Overall, exporters benefit with OSRA in that carriers can now price competitively and offer an expansion of services. That is where the “gold” is won, and with competitive pricing the more easily the ocean carrier also can add value.

CONTROLLING SHIPPING ISSUES IN THE ENTERTAINMENT, COMMUNICATIONS, AND BROADCAST INDUSTRIES: SIX KEY PRACTICES

The entertainment, communications, and broadcast industries have a unique set of requirements for their logistics needs. Perfection is a priority. Tolerance for late deliveries is nonexistent. Damages must be few and far between. Time sensitivity is critical. The potential loss of revenue for late deliveries is serious and has consequences. Only a handful of logistics service providers are available to handle the delicate needs of these industries.

1. Use Experienced Reputable Carriers

Handling the shipping needs of the entertainment, communications, and broadcast industries is both an art and a science. Above all it requires experience. Experience can best be determined by a quality reputation, which is obtained through the following:

Consistent performance

Safe, secure deliveries

Around-the-clock service

On-time pickups and deliveries

Worldwide capability

Personalized service

Flexible service parameters

Competitive pricing

Tenure in business

The Communications and Broadcast Industry Has Its Own Challenges

When determining your transportation carrier, seek out referrals from quality sources. Firsthand experience is often your best guide. Bigger is not always better. More so than in other industries, the entertainment and related businesses require a lot of attention, often not available in large transportation carriers where you are just “one small fish in a very large pond.” This industry also requires a lot of flexibility, again not typically available in more structured, rigid larger carriers.

The key is a happy medium in finding a carrier that is large enough to provide the necessary resources and capabilities but structured with flexibility and personalized service enhancements.

Time is typically critical in this industry. Carriers with an understanding of that issue with systems in place to make pickups and deliveries at any time in any place are rare commodities, but there are a limited number of companies that do specialize in this area and can respond to those specific needs. The entertainment industry is global; therefore, the transportation company used must have capabilities that encompass every corner of the world.

2. Make Sure the Shipment Is Insured

A shipment that is lost or damaged and is not insured can be a total nightmare and provides the potential for financial ruin. Carriers typically limit their liability. The limit can be determined by reading the service contracts, tariffs, or the bills of lading. These limits will usually fall far below the value of the goods shipped, and the agreed-upon terms will often limit exposures that fall out of their control, like “acts of God and inherent vice.”

Shippers have options to protect their interests. The best is to purchase an independent transportation policy that covers all shipments worldwide at the broadest insuring terms available, that is, “all-risk.”

Carriers will also afford you the ability to declare higher values and/or purchase insurance through them. They will charge additionally for this service and coverage availability.

It is critical for you to know first where you stand and then arrange for the necessary coverage. There are specialized insurance brokers and underwriters “geared up” for the entertainment, film, broadcast, and communication companies that have the knowledge and the expertise to provide competitive options and assist and mitigate in the recovery of claims.

You should have all the necessary information with you, particularly when offsite, for mitigating a loss or processing a claim. This insurance will prove to be money well spent and will save lots of dollars in the long run.

What Shippers Need to Understand About Cargo Insurance

Like lawyers, insurance is a real problem, until you need it!

And that is not the way it should be. Lawyers are an integral component of the global supply chain, and their value is not only when you need them but in assisting you to grow and manage your business.

Those of us who have been involved in global supply chains know that loss and damage to cargo in transit is always going to happen—it is just a matter of when and to what extent.

Typically, few executives focus on cargo insurance or liability exposures until a loss occurs. And that is when it is too late!

Insurance can also be a tool to

Understand risk and exposure in the supply chain

Mitigate the opportunities for loss and damage

Transfer the risk to a third party

Determine acceptable levels of risk tolerance

Importers and exporters can go direct to insurance companies, like Travelers, Zurich, Hartford, AIG, and Lloyds of London, or they can approach underwriters through specialized cargo insurance brokers such as Roanoke, AON, Marsh, and Gallagher.

Roanoke, which is one of the leading and more specialized cargo insurance brokers, arranges marine cargo insurance policies through its own company based in London or through other third-party carriers.

Companies like Roanoke will work with shippers, forwarders, and carriers in assessing their risks and providing customized and tailored terms and conditions to the benefit of their clients’ exposures for goods or services in transit.

Tied into the assessment is the opportunity for mitigation. This is also referred to as cargo loss control, which is defined as steps or actions in packaging, marking, labeling, materials handling, routing, or stowage or any measure that will favorably impact cargo outturn.

Loss control actions can prove to be a very wise spend, in that many extoll that for every dollar spent, the return comes back tenfold.

I recently worked with a company in Chicago that imported chemicals in fifty-five gallon drums in forty-foot ocean containers originating in Shanghai, China. In almost every shipment, particularly through the winter months almost 5 to 8 percent of the drums had damage. In the investigation from our staff cargo loss control professional, it was determined that the break bulk stow in the container, which maximized space utilization, combined with the ordinary motions of the vessel in heavy seas was the culprit.

The recommendation from the cargo loss control consultant was to unitize the loads on pallets, which would provide greater stability to the load and prevent shifting from occurring. The consequence of the palletizing was that each shipment contained 2 percent less load, and there was the cost of the pallets and the pallet certification process.

On the other hand, the importer utilized pallets in the domestic distribution and could unload the containers mechanically, which reduced the unloading time.

Additionally, the underwriter offered a 15 percent premium discount on the cargo insurance when the freight was shipped unitized on pallets in lieu of bulk in containers, where losses had occurred.

After eighteen months and thirty-seven shipments, loss frequency was reduced by over 80 percent. The loss control process clearly outweighed the loss of 2 percent of freight space on each shipment.

Importers and exporters also need to hold their forwarder, brokers, service providers, and carriers liable for the freight in their care, custody, and control. This transfer of risk is typically accomplished through a contract that goes above and beyond the liabilities set forth in “bills of lading.”

In addition to expectation to recover loss and damage, most financial exposures because of an error or omission would be recoverable. The shipper would require the service provider or carrier to provide a third-party legal liability policy along with a professional liability policy (E&O).

These are all best evidenced by certificates of insurance outlining the underwriter, terms, and conditions. Underwriters should be assessed by reputation, experience, and their overall best rating.

Most companies will have a risk tolerance. This is often referred to as a claim deductible or retention level. This is a dollar amount for when a claim occurs; the loss will be shared between you and the insurance company at the agreed amount. It makes for a more cost-effective approach to the purchasing of insurance.

Typically, the more risk the principal is willing to tolerate, the lower the insurance premiums and more liberal underwriting terms and conditions that would be offered.

Keep in mind that marine insurance is written on “manuscript policy forms.” This allows negotiation on terms and conditions and offers more room for customization and tailoring to specific supply chain requirements.

Managing global supply chain risks can be daunting, particularly in respect to cargo being shipped in imports and exports. But taking the time to understand the exposures and applying some solid foundation risk policies can go a long way toward reducing the opportunity for loss and damage and, when it does occur, knowing that you have the necessary protections available.

3. Pack and Label the Freight

Improper packing and labeling can account for almost 70 percent of all losses in transit. It is the shipper’s responsibility to make sure the freight is properly protected for the intended journey. The more remote the ultimate destination, the greater the need to provide adequate levels of packing, marking, and labeling.

If you are unable to take care of this, specialized carriers will often provide these services and charge you accordingly. The bottom line is, as the shipper, whether you package or pass it on to a third party, you must make sure the freight is addressed.

Carriers and freight forwarders are often good sources for packing advice. The fragile and expensive nature of communications and broadcast equipment requires the need for a high standard and level of packing. Once your shipping needs are known, the case manufacturers can provide packing that conforms to international standards.

Because equipment will be handled repeatedly, sometimes with degrees of carelessness, shipping globally will require enhancements to handle these increases in exposure. Airfreight is often the mode of transit. Although typically safer than truck, rail, and ocean forms of transit, handling and abuse can often occur. Equipment must be protected from shock using cushioning mediums that have a high degree of resilience. Outer casings must be rigid and provide protection against handling, stowage, and transit exposures.

Fiberboard is often a packing choice. We recommend minimal standards of double wall, with moisture protection additives and at least two hundred pounds plus in bursting strength. For international shipments, triple wall will offer better results. Unitization, palletizing, consolidation, and containerization should be considered when practical. Stretch and shrink wrapping are excellent enhancements. This will prevent loss and damage by reducing access to freight (larger units are more difficult to pilfer) and will afford handling by forklift rather than manual movement. Often you can load containers or unit loads at origin and then secure the unit until it reaches the ultimate destination. This maximizes security, reduces opportunity for loss and damage, and usually will provide the best potential for freight arriving in the intended condition.

In addition, unitization will often reduce shipping costs as carriers will provide rating discounts. In airfreight and ocean freight, the use of LD3 containers or twenty-foot and forty-foot steamship containers will reduce shipping costs as much as 30 percent over standard “loose and break bulk” modes.

Labeling all pieces with the shipper’s name, address, contact names, and telephone numbers is critical. Even when you unitize/consolidate several pieces as one shipping unit, it is important to label each piece in the event, by mistake or otherwise, that the consolidation unit is broken down.

Product names sometimes have value, but often it is best to keep product or brand name identifiers secluded. Advertising during transit provides little public relations but does call out to potential thieves.

We recommend that all boxes and cases provide some barrier to moisture and contaminants. Once the goods leave your care and custody, you lose control. Carriers could leave your freight out in open areas while awaiting transfer and expose the cargo to the elements. Stretch and shrink wrapping provide excellent loss-prevention measures. Opaque wrap will also cover brand names.

Using the proper packaging and adequate unit loads will increase up-front costs slightly but in the long run will always reduce the cost of shipping and all its related and intertwined expenses.

Keep in mind how expensive high-tech and broadcast equipment can be. Utilize packaging that protects high-value and delicate goods. The expense upfront will pay off down the road with fewer claims and losses.

4. Competitive Bidding

There is absolutely nothing wrong with obtaining two to three bids from competitors in the transportation services area. There are many integrated carriers, transport providers, and freight forwarders who will be more than willing to provide competitive bids. Even if you are satisfied with your current carrier, it pays to keep that carrier honest and/or reconfirm that your deal is a good one.

Having said that, certain guidelines should be followed in the bidding process:

Long-term relationships and favorable track records should always be given certain advantages in the proposal process.

Price is important, but if the freight is lost or arrives damaged, then the best price has little value. We recommend that you find a balance between service and price. To accomplish that, determine the best carrier by service and then negotiate the pricing. Even go as far as to request a proposal that only outlines services. Once you have reviewed all of the proposals, choose the best one or two and then work on the pricing.

Stick to the bid deadlines.

Make sure you compare “apples to apples.”

Get the opinions of others in your organization, particularly those who interface with the shipping function sector.

Following these guidelines will maximize the bid process to get a good price and the best value for your transportation dollar.

5. Form Partnerships with Your Carriers

There is no better way to maximize carrier performance and control shipping costs than to form partnerships with the transport management team handling the servicing of your account.

Bring them into your management thought process. Afford them access to the same information and future planning that you have. You will be surprised to see how by treating them as a “partner,” their performance will increase and they will start affecting the pricing favorably, acting as if it was their own dollars expended. It requires a lot of trust, usually accomplished with an existing relationship or a highly recommended one. The following are necessary for it to work successfully:

Payment for services must be adequate.

Communication must be excellent.

Trust factor must be absolute.

Dialogue must be straightforward, no-nonsense.

Goals must be clearly defined.

Time frame for goal completion must be realistic and doable.

Carrier must be made part of the budgetary process.

The smaller shipper may not need such a comprehensive relationship, but larger and more frequent shippers will find that this is an excellent option to have when seeking to maximize carrier performance and control shipping costs.

6. Dealing with Time-Sensitive and Specialized Freight Needs

The communications industry has specialized needs. Often the shipments are time-sensitive and arrangements for pickups and deliveries have unique times and features. The pickup could be in Oslo at midnight, following the broadcast of the Olympics, with delivery the following day in Los Angeles. Or the pickup could be at 5 a.m. outside an arena in Las Vegas for eight hundred pounds of anvil cases to be delivered the same day to New York City for retooling and then out again for next-day delivery in San Juan, Puerto Rico.

The shipment may be transiting overseas on a temporary basis and require an international carnet to assist the clearance, duty, and tariff issues. You may require local assistance in a city on foreign shores. You may need counsel and support on foreign documentation needs.

The transport companies you use must be able to handle these special needs and have experience in all these matters, along with a network of foreign offices and/or agents.

The bottom line is that while the shipment of freight and equipment may sometimes be frustrating, and we accept that there are certain things we cannot control, the process can be controlled to certain acceptable tolerance levels and the costs can be managed.

SHIPPING EQUIPMENT INTERNATIONALLY ON A TEMPORARY BASIS

Many individuals and companies who operate on a global scale from time to time have the need to move equipment, samples, or trade show material on a temporary basis to and from countries overseas and then back to the United States. These situations often can lead to mass confusion, shipping uncertainty, additional costs, and delays at customs. Ignorance of workable options in conjunction with improper preparation is usually the cause. The shipper has the following three options available:

1. Carnet (ATA)

2. Local leverage

3. Temporary import bonds (TIBs)

Carnet (ATA)

The carnet is usually considered the best option in shipping goods worldwide on a temporary basis. It affords shippers the opportunity to temporarily import goods without having to pay duties and taxes in the countries of destination and upon their return to the United States. It also eases customs entry and formality and will reduce the overall cost of customhouse services.

Carnets are classified for issuance in the following categories:

Professional equipment

Commercial samples

Exhibitions and fairs

Consumable items, gifts, and goods for sale are not acceptable for carnet application.

The United States Council for International Business, with offices in various U.S. cities, is part of a worldwide association, the International Chamber of Commerce, that administers the issuance of the carnet. In the process of obtaining the carnet, there is a bonding requirement that the council also administers.

The fees vary for carnets but average around $400. The bond costs will vary depending on the value of the equipment but are approximately 0.4 percent of the total value. Other factors that might affect the overall availability and cost of the carnet include the following:

Financial integrity of the applying company

Time available to process the carnet application

Number of countries to be visited

Time frame overseas

An application form is easy to complete. The general list that must accompany the application is a bit more detailed, requiring the following information:

Description of all equipment

Manufacturer’s name, serial, and/or model number quantity and weight of each item

Value of each piece listed

One should allow at least five to seven days to process a carnet. For an additional fee, some carnets can be processed the same day or overnight, but this is the exception and not the rule. You are better off allowing as much time as possible for processing.

For frequent users of the carnet, arrangements can be made with the U.S. Council for Ease of Applications, Expedited Carnet Processing, and Surety Arrangements.

The country list is fluid and always changing due to several political reasons, economic events, and forces involved in the international arena. One should always check with the U.S. Council for updates.

The U.S. Council is always looking to improve service. Fax and online services are now available for carnet processing, and they are continually working to add countries that are carnet approved. The period of the carnet can vary slightly but usually is for one year; however, the surety can remain open for as long as thirty months.

The carnet document travels with the equipment and is signed in and out of the countries upon entry and departure. Among European Community countries, it only needs to be signed in and out once. The carnet document, once used, is returned to the U.S. Council, and if all papers (vouchers and counter foils) are completed, the carnet is closed out. The premium for the bond is nonrefundable, but the bond may remain open until a later date to assure there will be no claims following the return. The Carnet headquarters of the U.S. Council for International Business is located at 1212 Avenue of the Americas, New York, NY 10036. Phone: 212-354-4480; fax: 212-944-0012; website: www.uscib.org; email: [email protected].

Local Leverage

When carnets cannot be used, a good second option is to obtain local leverage in the country of destination by working with the local customs office to afford temporary entry. Often the best circumstance is when your local contacts can provide influence over their local customs officials.

For example, you are planning to exhibit in a trade show in a non-carnet country. Often in these circumstances the local management group handling the show, sometimes the hotel where the show is being held, has made prior arrangements with customs to afford ease of entry and a reduction or elimination of duties and taxes.

Table 2-1. Carnet Member Countries and Their Territories

Algeria

Australia

Austria

Belgium

Bulgaria

Canada

Cyprus

Czechoslovakia

Denmark

Finland

France

Germany

Gibraltar

Greece

HongKong

Hungary

Iceland

India

Israel

Italy

Japan

Korea

Luxembourg

Malaysia

Malta

Mauritius

theNetherlands

NewZealand

Norway

Poland

Portugal

Romania

Senegal

Singapore

SouthAfrica

Spain

SriLanka

Sweden

Switzerland

Turkey

UnitedKingdom

UnitedStates

Yugoslavia.

NONMEMBER* AREAS CARIBBEAN ISLANDS

Anguilla

Antigua

Aruba

Bahamas

Barbados

Barbuda

Bermuda

Cayman Islands

Dominica

Grenada

Jamaica

Netherlands Antilles

Roadtown

St. Croix

St. John

St. Kitts-Nevis

St. Lucia

St. Thomas

St. Vincent

Grenadines

Tortola

Trinidad and Tobago

Turks and Caicos Islands

OTHERS

Fiji Islands

South and Central American Nations

*ATA Carnets may be accepted here; however, the United States Council for International Business (USCIB) will not guarantee their acceptance.

Another example: You are sending show equipment to a “shoot” in a non-carnet country. Often the managers of the shoot can influence the local customs officers, prior to the equipment arriving, by approaching the local agency involved with the promotion of the entertainment business. Many countries have favorable methods for handling temporary imports when it can be demonstrated to benefit the local economy.

Many times, the answer lies in maximizing local clout and resources in the country of destination. It is amazing what can be accomplished with a little creativity and effort.

Temporary Import Bonds (TIBs)

These are typically a last resort and could be quite expensive. Local customhouse or insurance facilities often can provide third-party access to financial guarantees to local authorities in the country of destination. Typically, these need to be arranged up to sixty days ahead of arrival and can cost up to 20 to 30 percent of the value of the goods. Certain Latin American countries have 100 percent surety requirements. Many times, the surety guarantee is not refundable, proving to be quite expensive.

Often your U.S. insurance broker or underwriter can assist in arranging for the TIB, along with the customhouse broker in the importing city of destination.

The high cost of the TIB, along with the timing and difficulty of arranging it, makes the TIB a last-resort option.

When using the TIB or other non-carnet means, one must consider the return to the United States. All equipment should be registered with U.S. Customs before the original departure. This is usually done hours before the equipment is loaded aboard the international transit conveyance. There is a specific U.S. Customs form for registration. Like the carnet list, it identifies piece count, value, origin/manufacturer, serial numbers, and so on, accompanied by export bill of lading details.

The equipment is subject to inspection by customs officials, requiring you to have the freight available for inspection when customs signs the registration certificates. Some U.S. Customs officers will require you to drop the equipment at the exporting carrier before signing off. All export points in the United States are manned by customs officers who will be able to assist you in the registration process.

If many pieces are shipped, the content of all boxes and packages as it relates to any of the lists or information provided to authorities should be clearly identified. This will greatly ease the inspection process if officials choose to do the same. All pieces should also be clearly labeled with the destination address, contact names, and telephone numbers for communication purposes.

Exporting equipment temporarily can be done easily when you know the options and prepare in advance. Your freight forwarders, customhouse brokers, foreign agents, and U.S. Customs are excellent resources for assistance. The U.S. Council, with qualified and responsive staffing, can also provide assistance.

SHIPPING PERISHABLE FREIGHT

Shipping ice cream is not that different from shipping computer parts; it is just that the temperature range variance is narrower and failures are more immediately obvious. Fresh meat, ice cream, frozen dough, medicine, milk, and candy are but a few of the many products shipped globally that will spoil if not handled under the almost perfect standards for shipping perishable freight. Perishable products have more critical tolerances than general cargo, but the principles apply to both.

The exposures to perishable freight include the following:

Time

Weather

Adverse handling

Poor documentation and labeling

Poor communication

Bad insurance

The shelf life of most perishables is reduced when the product is handled out of the required environment. Ice cream may be sellable within a year of manufacturing, but only if it is kept frozen. A maximum operating temperature range must exist for the product to hold its value. Too warm, it will melt. Too cold, it will freeze. It is important for the frozen product to be maintained in the correct temperature within the appropriate range.

This goes for just about any product shipped, in that there is a maximum and safe operating temperature for it to be handled and stored in. That range is typically the smallest for perishables. But having said that, any extreme in temperature will most likely cause harm to most international freight. Depending on the time of year and the course of transit, the parameters of temperature fall between 0- and 100-degrees Fahrenheit. Obviously, this can change by 20 to 30 percent depending on the variables of the season and location (for example, New Delhi in August is hot).

For most shippers, using that guideline will determine the exposures to their freight. Shippers in consultation with their forwarders, carriers, customers, and government weather resources can identify the specific needs surrounding the distribution and supply chain requirements. Once identified, these details will provide the necessary steps to be taken to provide safe transport.

Any issue that will delay delivery will cause potential harm to perishable freight. While all perishable freight may not be specifically time sensitive, it does by its very nature have a conflict with time.

Therefore, perishable freight must be shipped with time in mind (that is, the most expeditious and safe method possible) with obvious cost efficiencies in place. Always keep in mind what happens when things go wrong.

Perishable freight could adversely affect the conveyances in which it is carried. This brings in an additional consideration to the transport company and a potential liability to the shipper. Melting butter in the hold of a 747 freighter could cause damage to the airplane, at great expense. Decaying meat in a 40-foot ocean container could cause great harm to the container in cleaning, fumigation, and recouping expense; hassles with customs, food, and agricultural authorities; and total loss of freight to the “unhappy” importer.

Adverse handling will negatively affect perishable freight. Temperature-sensitive cargo usually will require special handling. An example would be an airfreight shipment of frozen ice cream samples packed in dry ice. During terminal stays and particularly if a flight is delayed, the freight should be kept in refrigerated or frozen reefer space when available. This requires the carrier to accomplish an additional physical movement. With certain carriers and certain carriers’ personnel, this is an easy task. In many instances, however, it is a burden and difficult to accomplish. The bottom line is the difference between the ice cream melting or staying frozen.

A twenty-foot steamship container loaded with chocolate and shipped at ambient temperatures will provide a safe haven for the freight. However, place that container on the deck of a vessel, under direct sunlight, with no steps taken for ventilation, in ambient temperatures of 80-degrees Fahrenheit, and the internal temperature of the container could exceed 110-degrees Fahrenheit. At that temperature, the chocolate could spoil. Think about your car in the parking lot during summer months. Keep the windows closed, return a few hours later, and you’re set for a “hot to sit in” car with the air conditioning blasting. That’s how hot it will be inside that ocean container.

Following is a discussion of recommendations that should be considered when shipping perishable freight.

1. Samples should be shipped with the same urgency and quality operational procedures of commercial freight. Just because a small quantity is shipped does not mean it is not susceptible to harm or customs scrutiny. A lot of this sample freight is shipped by integrated carriers, like UPS, Federal Express, or DHL. On certain trade routes, consideration should be given to alternative options in dealing directly with forwarders, carriers, or courier companies. Samples are a test for regular shipments as well. Don’t “nickel and dime” the sample shipment because it has low value. The sample is an extension of your operation, and its safe, timely arrival will increase your opportunity for concluding a much larger order. Therefore, use the best method of shipping, which may mean paying a fair transportation cost.

2. Communicate with all parties involved in the shipment. Use your resources and learn all the shipping, documentation, and handling requirements before executing the order. Make sure all parties understand the shipping requirements.

3. Set up a system that affords ease of tracking the status of the shipment and allows all potential problems to be communicated as soon as possible so mitigating steps can be enacted quickly. When structuring the details of the shipment logistics, communication lines must be included as a priority. All parties involved in the storage, handling, forwarding, and transport must be advised to communicate shipment status and problems as soon as possible. Use of written communication is key. Fax, email, and letters of instruction should all be used. Telephone and fax numbers, key personnel, and emergency response actions need to be communicated and documented in the process.

The bills of lading, which become the contract of carriage between you and the carrier, are an excellent source to communicate the special shipping requirements associated with perishables. For example, “keep away from heat,” “dry ice required,” “maintain temperatures between 10- and 40-degrees Fahrenheit,” “use ventilated containers only,” “sensitive to extremes or sudden changes in temperature,” and “product must be stored in freezers during terminal stays” are but a few of the clauses that would be placed on bills of lading. By doing so, two things are accomplished: (1) Special needs are communicated, which hopefully the carrier will comply with, and (2) by including these clauses, you establish a line of accountability to hold the carrier liable in the event the freight is damaged due to its lack of or incorrect actions.

Besides communicating to the carrier via the bill of lading, calls should be made to operating personnel, which help to make sure on a more personal basis that directions are understood and will be complied with. While all this sounds logical, you would be surprised at how many times these simple steps are not followed because many shippers take the approach “out of sight, out of mind.”

4. Exporters need to identify carriers and staff that have the expertise and previous operating experience to handle perishable freight. There are independent companies and individuals within the trucking, warehousing, freight forwarding, steamship lines, and air carrier industries that are specialized in the care and handling of perishable exports: trucking, Glacier Express; air, Lufthansa; sea, Maersk; warehousing, Christian Salveson; and freight forwarding, Scarbrough International and Western Overseas are just a few of these companies. They all have offices and agents in major U.S. gateway cities with sales and operating personnel to assist you with your shipping needs. To obtain freight orders, many carriers will misrepresent their perishable capabilities. You will need to discern this. Ask for referrals and follow up diligently. A review of a carrier’s capabilities must include the quality of its tracking and overseas office and the agency network to mitigate the potential problems that will occur over time.

5. Keep current with government and overseas customs regulations to assure accurate documentation requirements and timely clearance and delivery. While sources exist in booklet form to identify export documentation, these are not acceptable to this author, as the information is usually outdated by the time it is published and certainly not current at the time of your shipment. Rules, regulations, and local practices vary greatly from country to country, city to city, and import customs officer to officer.

Instead, communication with your customer and your freight forwarder’s office/agent in the country of importation to identify not only the documentation requirements but also the rules and regulations for packaging and labeling just prior to shipping is recommended. This will offer the most current information and provide the greatest opportunity to reduce import problems.

At the same time, identify local nuances that might affect your perishable export by asking the following questions: Are cold store facilities during terminal stays and clearance delays available? Are there carriers to utilize in that particular port or airport facility that will work better than others? As the exporter, is there anything you can do prior to shipment that will make it easier for your customer to facilitate import and other elements? Perishable exports that involve food and medicines are typically under some degree of scrutiny by government officials in every country. This may involve interaction with many different government agencies in the importing country. Foreign equivalents of U.S. Customs; Food and Drug Administration; Department of Agriculture; and federal, state, and local health agencies will all be factors affecting the perishable export. Many times, the entire process will be in a gray area and certainly confusing. Countries in the Middle East will bring religion into the equation. Certain countries like Mexico, which is still evolving NAFTA rules, are not clear on packaging and labeling requirements and show inconsistencies at various border crossings. Western European cultures are becoming more Americanized in their product liability concerns, and this will directly affect U.S. perishable food and medicine exports. Eastern European countries are still reorganizing under all the democratic changes, and some countries like Poland, Russia, and Czechoslovakia do not have clear and concise regulations for perishable imports and are struggling with their transportation infrastructures, causing logistical problems for safe and timely deliveries.

6. Insure all shipments on an “all-risk, warehouse to warehouse” basis to cover any of the potential risks and exposures you will face in exporting perishables. This includes refrigeration breakdown. Many marine insurance companies will provide full coverage but will have amendments to the policy restricting coverage for perishable freight. One such clause, “24-Hour Reefer Breakdown,” implies that the conveyance, like a steamship twenty-foot container, can retain the required temperature for at least twenty-four hours once the temperature control unit has broken down. This may or may not be correct. As the insured, you need to determine if these policy amendments/endorsements exist and how they might affect your ability to get paid if a loss occurs. For a premium to be agreed on, most underwriters will provide a tailored marine policy to cover your specific needs.

Another factor affecting underwriting perishable exports is that of preshipment conditions. Marine insurance coverage is designed to cover insured risks during transit. It is presumed that the goods are sound prior to export. For example, an export of frozen meat upon defrosting at destination is discovered to have an awful “taint.” When all the documentation is reviewed by underwriters, on presentation of a claim, if they do not identify anything that shows how the loss occurred during transit, they will deny the claim on the basis that the goods were probably not sound prior to shipment, what is sometimes referred to a preshipment condition. Some underwriters, for a consideration, will provide terms that give “prima facie” evidence that the goods were sound prior to export, upon issuance of certain plant or third-party inspection certifications. One such certificate, the MID Certificate, is provided by the Department of Agriculture, Meat Inspection Division (MID). Inspectors from the MID will inspect shipments prior to export and plant departure and certify the quality and status for export. Upon the issuance, the marine underwriter, who extends this coverage, is acknowledging that the goods were sound prior to export, and this in return will make it easier to negotiate on a concealed damage claim.

This is an important consideration for all perishable exports and an essential ingredient in a complete export strategy. The marine underwriting community is professional, competitive, comprehensive, and accommodating to the needs of U.S. exporters and are prepared to tailor policies, terms, and conditions to meet some of the demanding needs of perishable exporters.

Insurance companies like Great American, Continental/MOAC, CIGNA, Fireman’s Fund, American International Group (AIG), the Hartford, and the Travelers are just some that have quality staff and capabilities to insure perishable exports. John Rowney is president of Great American, Marine Division, which I have great respect for as one of the best marine underwriting sources for insuring U.S. perishable exports.

7. Certain precautions should be taken in the shipping process. For airfreight shipments, make sure that samples are packed with enough dry ice to accommodate the tenure of the flight: five pounds of dry ice for each twenty pounds of product per transit day is a guideline. For a forty-pound shipment going from Chicago to Hong Kong with an estimated transit time of two days plus adding one day for something to go wrong, one would need 3 × 5 × 2 or 30 pounds of dry ice. Specific product requirements will need to be considered as well as what packing is used.

Styrofoam boxes covered on the exterior by fiberboard provide adequate protection. Keep in mind that dry ice is preferable to blue ice and regular water ice, but product and time considerations need to be evaluated. All flaps, corners, and openings should be sealed with tape. The exterior of the box should be hazmat-labeled DRY ICE CLASS 9 and identified as a perishable, and any special handling requirements should be clearly outlined. It is also well advised to use the language of the importing country.

Dry ice is classified as a hazmat and requires “hazmat” labeling and will have certain restrictions and limitations on carriage and handling. New technology is developing with experimental chemicals and “blue ice” that can hold temperatures for longer periods of time than dry ice, but another one to two years for experimentation is needed before this author will make any recommendations for consideration. CROYPAK Corporation in San Diego, California, has some new products available to replace dry ice.

For airfreight shipments, make sure that the specific airplane is not booked to carry live animals. The carrier cannot combine a shipment with dry ice with live animals, which means that the perishable will get bumped at the time of loading. Dry ice rapidly absorbs oxygen when exposed to air, opening the opportunity for less air to be available to the live animal. In a small space, like a cargo hold, this could prove deadly to any living thing.

Use airfreight carriers with capabilities to store product in reefer areas during terminal stays and customs delays. Direct flights are preferable, when available.

For ocean shipments, use only reputable carriers with the most direct routing. Transfers of perishable freight are often a cause of spoilage claims. In evaluating ocean carriers of perishable goods, look to their perishable equipment capability and inventory. How old are the insulated boxes and the refrigeration units that keep them cool? What is their maintenance program? Do they have a game plan when reefers break down en route? Can they replace broken units quickly?

Time, which is the biggest enemy of the perishable exporter, is always adversely affected by weather. While this is almost impossible to specifically control by shipment, it can be generally controlled by the overall strategy of supply chain management. If you know that airfreight becomes crowded from Thanksgiving to New Year’s Day, then attempt to ship before or after this time frame. For ocean shipments from the United States, the winter North Atlantic can provide havoc and potential delays. When possible, you may want to limit the volume of shipments now.

Perishable exports can reap high awards and profits when the risks are mitigated. The steps outlined in this chapter are all feasible and can be easily followed. The recommendations are critical to the safe and timely delivery of all perishable exports.

USE SPECIALIZED CARRIERS AND FORWARDERS FOR THE BEST SERVICE AND RATES

No international forwarder or carrier can be all things, all the time, to all parts of the globe. More typical is that there are common traits among forwarders and carriers that tend to specialize in certain trade routes, commodities, and service levels. Knowing who these forwarders and carriers are and having some level of working relationship with the sales and/or operating management will show results in the long run. Larger shippers often will have their international business split among several carriers and forwarders to take advantage of individual areas of expertise. While one may not want ten transportation vendors to contend with, having two to four may prove workable with beneficial results.

In this evaluation, consolidators and NVOCCs should be brought into the profile of options as they tend to “specialize” in certain geographic zones and/or commodities. They also can bring competitive rates to the table, particularly for less-frequent shippers and all LCL exporters.

Develop Relationships with Your Carriers and Forwarders

All carriers and forwarders have sales or account representatives. Get to know these people well. They usually can bring a significant amount of resources to your favor. They are often the critical link to operations, which ultimately will be responsible for how the carrier services your account. Know who the key operating personnel are in case you must reach them directly. Know who the general or senior manager is for those more difficult or time-sensitive problems.

Visit the carrier operations offices to meet the operating personnel personally. Face-to-face meetings will bring about a better working rapport. Operations personnel, who can be inundated with problems on any given day, will work harder for you when they know who you are, they have “broken some bread” with you, and there is some basis of friendship.

Knowing the key players, their strengths and weakness, their idiosyncrasies, and so on will better enable you to maximize utilization of their services, particularly at critical transportation times, which occur frequently.

KNOW YOUR COMMODITY CLASSIFICATION

Ocean transportation rates are controlled by many key factors, of which one is the commodity. Often subtle differences in how you “describe” the commodity will affect the freight rates. While you do not want to be dishonest, you do often have room to offer a different commodity classification that will enable you to obtain a better freight rate. Your sales agent and/or freight forwarder can assist you in determining the correct, best option.

REVIEW THE LOGISTICS

The typical ocean move will have several legs of the journey. Minimally you will have two inland transits and an ocean leg. When the freight rates are being quoted, have them quoted with and without the inland transit, the reason being that you may be able to obtain better land rates on your own, depending on an array of factors.

Check Out Intermodalism

Sometimes combinations of rail (piggyback or container or flat car [COFC]), truck, and ocean will provide better rates than more direct modes.

DEVELOP NEGOTIATING SKILLS AND BRING THEM INTO PRACTICE

In any purchasing management function, developing skills that afford greater control of vendor prices will prove cost effective, particularly with carriers and forwarders. Once you have received a rate proposal from your transport vendors, unless you know absolutely that the rates quoted are the best, go back and ask for better pricing. Even if you get nowhere, you are better off for asking. The most likely result is that you will get pricing anywhere from 5 to 20 percent better for just taking the time to ask.

Compromise on Little Things to Win Bigger Issues

Be persistent and have persuasiveness. Do not give in. Be stubborn and maintain your demands. It may take several meetings to bring in the results you want.

Many times, in the proposal stage, the transport vendor might ask for you to divulge what rates you are looking for or what rates you currently are paying. This must be faced with severe scrutiny and discretion when responding. Divulge this information only in the best of long-term relationships. You would be better off telling the carrier to give its best rates. Once this has been done, you can always work with the carrier to bring it in line with what you need if the rates quoted are higher. The downside, however, might be in the case where your current rates or expectations are high and the carrier, knowing this, will provide rates just low enough to beat the competition, even though the capability exists to offer even lower rates. You lose.

Remember that negotiation is as much an art as a science. It takes a great deal of effort, skill, and persuasiveness to be on the winning side consistently. In exporting, having the best rates gives you a significant competitive advantage, resulting in more satisfied customers, increased sales, and higher profits.

THE CHOICE OF TRANSPORTATION: AIR VERSUS OCEAN

Exporters/importers are always being confronted with making shipping decisions for which the choice between air and ocean is a critical factor. The many factors affecting the decision-making process are:

Cost

Time sensitivity/delivery requirements

Nature of product and size of orders

Customer needs, origin, and destination locations

Cost

Ocean shipping is generally less expensive than airfreight. This would be true whether determining calculations by volume or weight. Most shippers consider shipping by air a “premium service” left for high-priority and urgent shipments only.

Shipping twenty thousand pounds of electronics from New York City to London might cost $3,500 by ocean compared to $11,000 by airfreight, a cost savings of 68 percent. Obviously one would have to acknowledge that the air transit on a door-to-door basis might be two to four days compared to twelve to twenty days by ocean. Also, the ocean leg might bring on greater exposure for damage during transit and all the hazards associated with vessel transit across the North Atlantic Ocean.

The savings on a cost-comparison basis only is diminished as the size of the shipment lessens. In other words, an LCL by ocean transit does not produce as great a savings compared to airfreight. There is no exact size to determine that the savings/benefit issue balances itself out, as all trade routes and commodities have wide variables; however, once the shipment weighs less than 1,000 pounds or 454 kilograms, one needs to take a serious look at airfreight pricing, as it would probably, on a door-to-door basis, be very close to ocean transportation costs.

It is important to keep in mind that the commodity, its density, its dimensions, and the trade route will all influence the breakpoint for a responsible comparison of air versus ocean.

It is also important to look at the trade route at points, like the United States/South American corridor. Currently, there is a heavy amount of airfreight that comes from cities like Bogota, Rio de Janeiro, Buenos Aires, and Caracas to various American cities through gateways, like Chicago, Miami, and New York. There is also a lot of competition among airfreight companies. The effect of all this is that a shipper can negotiate favorable airfreight rates for higher and lower weight breaks. In comparison with ocean freight, this would bring up the potential breakpoint to weights as high as 5,000 pounds or 2,268 kilos or less.

Time Sensitivity/Delivery Requirements

Airfreight will always provide a better option on time-sensitive freight. Major cities in the world can all be reached within one to four days from all gateway points in the United States. Depending on outlying points of final delivery and the infrastructure of the importer’s country, you may need to add another one to four days for local clearance and delivery. Ocean freight can take up to as much as seven to forty-five days to reach most port cities, not including time for clearance and inland transit.

A vendor filling orders on a JIT or lean inventory management basis may only have two to three days to move the inventory supplies from its Chicago manufacturing plant to the customer in Brussels. Ocean transit provides no option. Airfreight becomes the only answer and is very doable.

More exporters are considering airfreight, even with its increased transit expenses, as a lucrative overall logistics option because savings can be had that outweigh the additional freight expenditure. These savings include the following:

1. Reduced costs of inventory, storage, and insurance

2. Less-expensive packaging and handling outlay

3. Lower transportation (marine) insurance

4. Greater productivity of manpower and use of time

5. Better demand planning and lean practices

Nature of Product and Size of Orders

The size of the shipment will dictate carrier options. In the simplest of terms, it does not pay to send a ten-pound package by ocean. The economy of small packages is in airfreight. Integrated carriers, along with the U.S. Postal system, have numerous options for small packages less than thirty pounds.

Integrated carriers such as UPS, DHL, and Federal Express and freight forwarders are excellent options on midrange freight from thirty to five hundred pounds. Once five hundred pounds is reached, one would need to review ocean freight as a potential option. Most shippers, however, make the “break” at one thousand pounds.

However, larger freight by weight and dimension pose several logistical problems to air carriers. The size of the aircraft plays a key role in determining service availability. The openings in the cargo hold are an important element. For instance, a 737 passenger carrier that takes freight in the belly will typically restrict the weight of one piece to 300 to 350 pounds and the height or width to no more than 42 inches.

Compared to a 747 freighter that can handle up to thirty-five thousand pounds per piece, the actual determining factor would be density per square foot. The 747 has forward lower door openings of 104 by 64 inches and a front nose loader with 7- by 10-feet capability.

There are commercial aircraft in the Hercules class that can handle up to one hundred thousand pounds per piece. The actual determining factor would be density per square foot with a nose opening more than twenty by thirty feet. There is an array of carriers and forwarders that specialize in heavy lift cargoes. One would have to look at the air carriers, their aircraft, and their trade routes to determine just how large a piece they could carry. It is also important to understand that the larger aircraft, particularly one with heavy weights on board, needs plenty of runway to land safely. Not all airports have this capability. You may be able to get the cargo on the plane in JFK/New York, but there may be no capability to handle the larger aircraft in Durban with shorter runways.

The nature of the product will also determine carrier options. One would not ship scrap metal by air. Its value against a high density and volume affords only ocean freight as a competitive option. If you are moving an entire oil platform, its size restricts you to the vessel mode. One would not ship precious artwork with very high value by ocean. The risks and time frame are too great. News and media communications, films, and tapes that are old the next day are only newsworthy when delivered the following morning, making airfreight the only choice. These are but a few of the examples involved when considering the options.

Needs, Origin, and Destination Issues

The customer may dictate carrier options. These options may be part of the sales negotiations and ultimately part of the sales contracts being clearly identified in the commercial documents, like the letters of credit. In certain developing countries, the importer may require shipments by ocean to be with their national carriers. In this case, you may have little option as to the carriers used once the mode is agreed upon. The customer’s inventory and purchasing management systems may dictate need. The location of the shipping point and the origin point will dictate mode of transit. For example, an exporter to Latin America, located near Miami, will have lots of less-expensive airfreight options compared to an exporter located in Pocatello, Idaho. Shipping to Guam makes all modes expensive because of its remoteness. The closer an exporter is to port cities like New York City, Los Angeles, Seattle, and New Orleans, the lower the inland costs. The river system presents potential lower inland costs than trucking, but still, the closer you are to the port, the lower your overall transportation costs. As the Eastern Block opens, exporters are finding new opportunities in Russian ports, like Moscow, Irkutsk, Omsk, and Igarka. They are finding out that there are high transportation costs into these areas, great risk of theft, pilferage, and damage, and very few options by air and ocean with reasonable and consistent delivery schedules.

Exporters and importers to and from the Caribbean find ocean and air viable options on smaller shipments. There are many LCL carriers with ocean consolidations at competitive prices. Airfreight to the Far East is expensive compared to ocean freight, where there is a high volume of traffic and many competitors. The transit times are continually being improved with faster vessels, better scheduling, and new inter-modal methods, like mini-land bridge, which moves freight by rail from eastern and central points to the west coast and then onto vessels destined for the Far East. The bottom line is that there are many factors that must be considered when deciding the best options. Forwarders, carriers, transportation consultants, traffic clubs, and international trade organizations, along with several key transportation periodicals, are usually the best resources for gathering data to make informed decisions. Informed decisions lead to better shipping and greater profits in exporting.

DEALING WITH STRIKES IN PURCHASING TRANSPORTATION SERVICES: THE 1998 UNITED PARCEL SERVICE DISASTER TEACHES US A FEW LESSONS

The freight forwarding, trucking, and air carrier industry was never so busy once the teamsters-led strike was activated against the leading small package carrier UPS.

The effects on shippers and carriers will be long lasting. The small package industry will never be the same. Many exporters, importers, and domestic shippers were greatly affected. They will not operate on a similar basis again, although some never learn from their mistakes!

On reflection, five suggestions have been identified that exporters and, for that matter, all shippers should consider in lieu of a revisit to an equally grand fiasco as witnessed in the UPS strike.

This former issue still resonates with cargo shippers in 2017, now tied into a major bankruptcy in ocean freight with Hanjin Shipping in 2016 and an aftermath stretching into the spring of 2017.

Additionally, the West Coast Ocean Freight Strike of 2015 impacted shippers all over the world, particularly import companies here in the United States. The financial loss exceeded 10 billion dollars US.

Don’t Put All Your Eggs in One Basket

Having sold freight services for many years, I often came across the traffic manager who had no reason to see me as someone who “was very happy with his current carrier.” Hogwash! While I fully recognize that it is not necessary to see every freight vendor who calls on you, the UPS and other strikes and worker disruptions clearly demonstrated the need to have and continually develop relationships with several providers.

You may decide to have one primary vendor, but you should have options or at least relationships with potential vendors so you can act quickly if necessary.

Many diehard UPS shippers frantically called Federal Express, DHL, or their friendly freight forwarder looking for a last-minute option, only to find out that they were first servicing existing accounts, reluctant to open new accounts, or charging retail-plus prices, leaving you with a significant disadvantage. Too bad!

Maintain a Portfolio of Options

Spend at least 5 to 10 percent of your time meeting new vendors, attending networking sessions, visiting trade associations/trade shows, and so on. While they might not have short-term advantage, they will provide long-term advantages, so when options are needed, they are just a call away.

While we all have busy schedules and are expected to accomplish more with less, an integral ingredient to success in global trade is to network oneself with an array of service providers, friendly competitors, and exporting colleagues to maintain a dossier of options for potential future needs. The effort will pay off in spades and prove a successful ingredient in your overall export operation.

Develop a Contingency Plan

The UPS strike proved that the inevitable can happen. We should not wait until it happens again before planning a contingent strategy. The UPS strike could have been foreseen. The media started to report the potential problem more than six months before the strike started, which was more than enough time to seek alternatives.

Many companies were crippled by the strike. UPS, who allegedly carries 80 percent of all small package freight in the United States, would never be replaced in the short term in the best of circumstances. This strike affected all modes of transit and strained the entire transportation infrastructure both within the United States and for our exports. No one alternate carrier or group of alternates could totally replace the shipping requirements of the UPS client base.

This called for strategies that reach into

Manufacturing

Production

Inventory management

Corporate planning

Procurement

Import and export operations

Global sourcing

Supply chain management

This now calls for a very intensive organized effort for larger companies and a focused charge for smaller organizations, which goes way beyond just thinking of freight movements and instead to “total global logistics.”

The worst-case scenario must be predicted and alternate plans found that offer some degree of fail-safe.

A company would best be served by meeting with key operating and sales staff, forming a committee that would review the consequences of a potential UPS strike, and developing a strategic plan B to prevent a potential disaster from occurring.

Maintain Quality Communications

The disruption this strike caused for many companies strained vendor-client relations. Timely, accurate, and quality communication between the shipper and the consignee could help.

The consignee being made aware of the problem early on might allow the consignee to consider other options for shipping or alternate supply sources.

The consignee might adapt to the situation and have you ship only critical goods in the short term.

The consignee will feel better knowing you are doing all you can and are keeping him or her informed.

If the cost of shipping potentially increased, let the consignee know ahead of time and work out options to share the additional costs.

All of this will go a long way in maintaining long-term client relationships.

Change the Logistics

Many exporters of small packages found an option by retiming their shipments and sending larger orders. This opened the door for a host of options with consolidators, freight forwarders, and specialized integrated units to deal directly with air, truck, rail, or ocean carriers.

Keep in mind that there are small package carriers and those that carry heavy weights (from one hundred pounds to twenty tons and more). By increasing your shipping weights, you now have an array of options, competitors, and vendors who can move your freight.

The strike proved fruitful for some companies who thought UPS was the only option. Many shippers found numerous choices by common carrier, freight forwarder, or integrated competitors.

Often what appears to be a disaster can offer many long-term benefits. Being forced to search for choices now opens the door for potentially better shipping methods and logistics that can prove more cost effective to the exporter.

SOLID WOOD PACKING TREATMENT GUIDELINES

The USDA APHIS (Animal Plant Health Inspection Service) has issued a proposed rule to adopt an international standard on wood import regulations.

The international standard, which is referred to as International Plant Protection Convention (IPPC), calls for wood packaging material to be either heat treated or fumigated with methyl bromide and marked with an international mark certifying treatment.

APHIS is proposing to adopt the IPPC guidelines because they represent the current international standard determined to be effective for controlling pests in wood packaging material use throughout the world in global trade.

In 1996, a connection was discovered between the Asian long-horned beetle and the death of trees in Chicago and New York. In 1998, APHIS issued regulations mandating that all wood packaging from China required a certificate stating the wood had been properly treated. The acceptable methods of treatment were by heat or fumigation.

Since that time, solid wood packing regulations have affected import shipments into other countries, including Australia, Brazil, and the European Community.

The IPPC guideline would require treated wood packaging to be visibly marked. The mark would follow an approved standard and include identifying the treatment facilities, country, and producer codes. Those of us familiar with the International Air Transportation Association (IATA) dangerous goods regulations would say it would be like the United Nations packaging symbol, which are used to regulate the specifications on packaging meant to contain dangerous goods.

The IPPC symbol has not yet been agreed on but, following the final ruling of the APHIS regulation, should be available to the public.

The comment period closed on July 21, 2003. Regulations were adopted in 2004 and continually are updated through 2018.

Wood packing guidelines evolve every year and vary from country to country. For example, in the United Kingdom:

Wood is widely used as a packaging material in international trade. Due to the risks of introducing and spreading tree pests, strict controls on wood packaging, both for imports and exports, are enforced. If you don’t conform to these requirements, your entire consignment could be rejected or even destroyed.

Wood packaging means any kind of wood used anywhere in packing, such as packing cases, boxes, crates, drums and similar packing, pallets, box pallets and other load boards, and pallet collars. It also includes dunnage—loose wood used to protect goods and their packaging and to stop cargoes from shifting during transit. There are specific environmental and other requirements for wood packaging, in addition to any standard requirements for importing packaged goods or packing materials into the United Kingdom.

Every destination country will also have its own import requirements with which you must comply if you’re exporting packaged products. This guide, outlined in https://www.gov.uk/guidance/requirements-for-wood-packaging-used-for-imports-and-exports, explains these requirements and shows how to import wood packaging into the United Kingdom and what rules there are for importing goods into the United Kingdom packed in wood packaging.

In the United States,

The U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) has set standards for wood packaging material (WPM) imported into the United States through 7 CFR 319.40—Importation of Wood Packaging Material. This rule states that all regulated wood packaging material shall be appropriately treated and marked under an official program developed and overseen by the National Plant Protection Organization (NPPO) in the country of export.

If you import goods into the United States from foreign countries, you should make certain that the supplier or exporter has properly treated and marked all wood packaging material prior to shipping. This will ensure your shipment is in compliance with APHIS regulations and prevent your shipments from being delayed at the border.

For more information about APHIS’ WPM regulations, visit www.aphis.usda.gov/newsroom.

For information pertaining to heat treatment and marking requirements, visit the American Lumber Standards Committee (ALSC) or call (301) 972-1700.

Shippers need to pay attention to both export and import regulations, which will vary and often have to accommodate dual sets of standards in multiple countries to successfully export and import into multiple countries where word packing is utilized.

Wood packing and pallets are a major materials-handling component of international shipping.

HAZARDOUS MATERIALS AND HANDLING ISSUES

The import/export supply chain managers on domestic and international shipments have an array of regulations when shipping materials with hazardous properties.

It is critical to determine the nature of the product. This is best done by having technical personnel, engineers, chemists, and others work with material safety data sheets (MSDS) in conjunction with government regulations to determine the hazardous qualities of the cargo and its proper classification.

This can be as much an art as a science, and it requires a specific level of hazardous material expertise. Proper training and education in hazardous materials regulations is a critical element of any compliance/safety program.

Once the nature of the cargo is determined, the logistics personnel must incorporate the packing, marking, labeling, storage, and shipping process with various regulatory agencies, such as but not limited to

Department of Transportation (DOT)

Coast Guard

Federal Aviation Administration

International Air Transportation Association

National Transportation Safety Administration

International Materials Dangerous Goods Commission

Nuclear Regulatory Agency

Hazmat Labels

Federal Communications Commission

An array of local, state, and foreign regulatory authorities

Hazardous Materials Labels

While the DOT sets the overlying standards for hazardous materials in the United States within Code of Federal Regulations (CFR) Title 49 depending on the mode of transit, the from and to, specific products, and quantities, there may be several governing agencies that the importer and exporter must be aware of, and they must make sure they are managing the freight within the supply chain in a compliant manner.

The following suggestions will help keep most companies out of trouble:

TEN STEPS TO ASSIST IN SAFE AND SECURE HAZMAT TRANSPORTATION AND STORAGE

1 Train, train, train. Everyone and anyone in your organization should have current training in each mode of transport that your organization uses to move your hazardous materials. Additionally, each organization, at each location, should have the current set of mode-specific regulations or standard operating procedures (SOPs) for transporting hazmats.

2. Put someone in charge. Every organization should delegate the main compliance, safety, and security issues concerning hazmats to a designated employee. That employee should be trained every year, regardless of what is mandated by law. Hazmat laws change during the year, and the person in charge needs to be kept current on any pertinent changes. This person should be available to all hazmat employees for support, review, and assistance. Some companies also engage consultants to provide necessary support capabilities.

3. In-house audit. There are record-keeping requirements that are mandated by the hazmat regulations and law. A quarterly or at least biannual internal audit should be conducted by the person in charge or an independent third party, as stated above. They should be checking that AT LEAST the shipping papers pertaining to hazmat transportation are in their respective file but should also spot check transactions for accuracy and compliance with all regulations.

4. Unspecification packaging. Almost every hazmat shipment requires packing in UN Spec packaging. Always be certain that the manufacturer that you purchase UN Spec packaging from includes the instructions for use AND THAT THOSE INSTRUCTIONS ARE FOLLOWED by the employee charged with the task of packaging the material. During a DOT audit, you may be asked to produce the instructions from the manufacturer. (See figure 4-1.)

5. MSDS. The Occupational Safety and Health Administration (OSHA) requires that these be made immediately and readily available to all employees who handle or who are subjected to hazmat materials. This is not a hazmat requirement. However, it is a good tool for double-checking. (Some carriers require the MSDS be sent with the shipment, and they have the right to impose this requirement under their own hazmat safety plan.) It is helpful to include these when sending shipments to a freight forwarder or another carrier or trucker. If you are the actual manufacturer of the product and prepare your own MSDS, it is extremely helpful to add a “transportation” section that lists the proper shipping name, class number, and UN or ID number. Any compliant MSDS will include this information.

6. Emergency response telephone number. This is a requirement of U.S. law, as per CFR49 parts 100–185. This number must be operative twenty-four hours a day, seven days a week, 365 days per year. It cannot be a pager number or a message machine. Someone who has knowledge of handling a spill or another emergency must be immediately available to the authorities. If the shipment is destined for an international location, the number must NOT BE TOLL FREE unless the toll-free number works internationally. Country and city codes must be included in the emergency response number if it is an international shipment. The hazmat person in charge also needs to be linked to this number for emergency response support.

FIGURE 2-11. The Office of Hazardous Materials Safety of the DOT is user friendly and available to help all supply chain managers with hazardous materials safety programs, provide access to government resources, and provide access to expertise that can help them through the maze of government regulation.

7. Inventory. Each organization who ships hazmats should take frequent inventory of its packaging, its label, and especially its placard supplies. In most cases, it is the shipper’s responsibility to offer the applicable placards to the driver at the time of pick up. It is a direct violation of U.S. law if the shipper does not provide the driver with placards when they are required by Tables 1 and 2 in CFR49 part 172.504. Your shipment could be unnecessarily delayed if your inventory is not kept current. This will also eliminate the temptation of the shipping or packaging department to use noncompatible UN Spec packaging. Older inventory stock piles might need updating.

8. Storage. Proper separation and segregation are critical to safety. Be certain that all hazmat employees in your organization who are involved in storage, inventory, and loading of hazmats have the “segregation” chart readily available. It is imperative to safety that certain substances are not stored next to or near other substances. For example, Class 3 flammable liquids should not be stored with any oxidizing substances. If the flammable liquid caught on fire, the oxidizer would feed a fire, like what happened on the Value Jet disaster in South Florida. CFR49 provides all of the criteria for proper segregation.

9. ORM-D materials. ORM-D is an exception that the U.S. regulations have put in place for consumer commodities that are packaged with the intention of—or suitable for sale through retail sales agencies for—consumption by individuals for personal care or household use. ORM-D IS NOT INTERNATIONALLY RECOGNIZED. If you are shipping your goods to a domestic location, for on-forwarding to your international customer, you will need to follow the IATA (air) or International Maritime Dangerous Goods (IMDG) (ocean) regulations. ORM-D for domestic ground transportation does not require any shipping papers indicating the class, proper shipping name, and so on. Other than ground transportation, the documentation must be changed and a shipping paper or dangerous goods declaration must be prepared, typically as a limited quantity shipment. If you ship ORM-D goods and know they are going to be transported somewhere along the line, in any other mode than ground, you as the shipper must comply with the documentation requirements for that mode of transport.

10. Security—new ruling. Each hazmat employer must have a security plan in place as of September 25, 2003. The DOT can assist in the format, and it does not need to be very complicated. The next printing of the CFR49 will include this requirement in sections 172.800 and 172.802. It lists the components of the plan that must be in place and who the mandatory security plan applies to. You can also find these sections at the DOT website.

Most corporations and manufacturers have hazardous materials risks. It is not limited to pharmaceutical, chemical, and food companies. For example, batteries, certain types of aerosols, and certain paints all can be classified as hazmats, depending on specifics. These risks extend to all the service providers, carriers, and vendors/suppliers.

Quality hazmat loss-control programs include SOPs and participation from all of the parties in the supply chain.

A key website for hazardous materials is http://hazmat.dot.gov/. A quality consulting contact is Kelly Raia, [email protected], 516-236-5716.

More DOT Security Scrutiny for Hazmat Shippers

Shippers and carriers of certain highly hazardous materials were mandated to have operating antiterrorist security plans in place by September 24, 2003. The plans were mandated under a March final rule issued by the transportation department’s Research and Special Programs Administration (RSPA). The RSPA rule also requires hazardous materials shippers and carriers to assure that their employee training includes a security component.

Notice of the security plan and employee training requirement was published in the Federal Register, and the rule became effective that same day. RSPA said in the notice that persons subject to the security plan requirement have six months from the effective date to implement their plans.

To recap RSPA’s notice, the agency said its final rule adopts the following revisions to the hazardous materials regulations:

Shippers and carriers subject to the registration requirements in CFR49 part 107 or who offer or transport select agents and toxins regulated by the Centers for Disease Control and Prevention must develop and implement security plans.

Hazmat employers must provide security training to their hazmat employees. Hazmat employees of companies required to have a security plan under this final rule must be trained in the plan’s specifics. All hazmat employees must receive training that provides an awareness of the security issues associated with hazardous materials transportation and possible methods to enhance transportation security. This training must also include a component covering how to recognize and respond to possible security threats.

RSPA said that when federal inspectors conduct inspections at shipper and other facilities, they will look for security plans and training records related to security. The agency noted that in public comments, critics said the security requirements would not have prevented the September 11, 2001, terrorist attacks and that the requirements fail to strike an appropriate balance between security and economic goals.

A complete copy of the RSPA hazardous material security rule can be found at the following website: http://hazmat.dot.gov/68fr-14509.pdf.

Federal Requirement Hazmat Training

The federal government requires every dangerous goods shipper to have job-specific dangerous goods training before tendering a dangerous goods shipment to FedEx or any air carrier. Shippers are directly responsible for the correct transport of dangerous goods by air.

The government regulations state the following:

Each person involved in the shipping and/or handling of dangerous goods must be trained.

Recurrent training must occur every two years. Exception: In the United States, the Department of Transportation (DOT), as competent authority, allows training for shippers every three years.

An enforcement agency may review your training records at any time.

Failure to comply with domestic and international hazmat shipping regulations can result in rejected shipments, fines as high as $75,000 per day per violation, and carrier blacklisting. Ensure that you and your colleagues have been properly trained and can confidently manage your hazmat shipping operations.

HAZARDOUS MATERIALS SHIPPER RESPONSIBILITIES

DETERMINE WHETHER A MATERIAL MEETS THE DEFINITION OF A “HAZARDOUS MATERIAL”	SHIPPING PAPERS
Proper shipping name	Emergency response information
Class/division	Emergency response telephone number
Identification number	Certification
Hazard warning label	Compatibility
Packaging	Blocking and bracing
Marking	Placarding
Employee training	Security plan
	Incident reporting

Listed above are the major responsibilities of hazmat shippers. General shipper responsibilities are contained in 49 CFR Part 173. Identification of a hazardous material is the first step and frequently the most difficult. Of all the shippers’ (offerors’) responsibilities, the requirement to properly classify a hazardous material is very important. It is on the proper identification of the hazardous materials that the other requirements are based. A list of all material regulated by the DOT is in section 172.101.

The current 49 CFR is consistent with the international requirements. However, there are some differences in the requirements for shipment by international air, international vessel, and to and from Canada. The HMR addresses the requirements for the movement of shipments prepared in accordance with the international and Canadian regulations in 49 CFR sections 171.12 and 171.22.

HAZARDOUS MATERIALS CARRIER RESPONSIBILITIES:

Shipping paper

Placard and mark vehicle

Loading and unloading

Compatibility

Blocking and bracing

Incident reporting

Security plan

Employee training

This list contains some of the major responsibilities of hazmat carriers. Carrier and offeror (shipper) responsibilities frequently overlap. When a motor carrier performs a shipper function, the carrier is responsible for performing that function in accordance with 49 CFR. The cargo space of the vehicle should be suitable for the material being shipped. The vehicle itself must be in sound mechanical condition. The carrier must check to ensure that the material offered by the shipper is properly described and packaged. In addition to the provisions of 49 CFR Parts 100–180, interstate motor carriers of placarded loads must comply with the hazardous materials requirements in 49 CFR Part 397.