Shipper’s Perspective Global Trade

1. Transportation Strategy – SCMN 4780 Shipper’s Perspective Global Trade

2. International Trade for US Companies Shipper’s Perspective 2

3. Reasons for Increased Global Trade • Grow the business through trade in new markets • Diversify financial performance over various economies • Establish brand identity and viability in foreign markets • Improve profitability by reducing supply cost (outsourcing) • Superior quality of products in foreign market • Access to unique materials and/or new technologies • React to buying / selling patterns of competitors • Improve plight of downtrodden nations / people Shipper’s Perspective 3

4. US Global Trade ($B) Shipper’s Perspective 4

5. US Global Trade ($B) Shipper’s Perspective 5

6. 2000 – 2010 US Global Trade $B Shipper’s Perspective 6

7. Key Barriers to Successful Global Trade • Lack understanding of import procedures / documentation • Lack knowledge of foreign business practices • Logistical, political and financial risks • Language and cultural differences • US domestic market nationalism • Complex contract negotiations • Difficulty in making engineering changes • Longer supply chain lead-times (vs. LEAN)

8. US Top Trading Partners – 2010 2010 Top 15 US Trading Countries ($B) Shipper’s Perspective 8

9. 2010 US Top Trading Partners 2010 Top 15 US Trading Countries ($B)

10. Domestic Transportation Network Outbound Transportation Inbound Transportation PRODUCER (Shipper) SUPPLIER CUSTOMER Interstate Border Crossing Interstate Border Crossing Shipper’s Perspective 10

11. Border Crossing Comparison Phoenix San Antonio Monterrey Shipper’s Perspective 11

12. Global Transportation Network Outbound Transportation EXPORT Inbound Transportation IMPORT PRODUCER (Shipper) SUPPLIER CUSTOMER US Border Crossing US Border Crossing Typical modes of transport between Mexico and US? Shipper’s Perspective 12

13. U. S. Points of Entry Shipper’s Perspective 13

14. Globalizing the Supply Chain What management changes are required by the shipper when logistics linkages cross the border of a sovereign country? extraction conversion manufacture US Assembly Operation ? distribution retail consumption Shipper’s Perspective 14

15. US Customs & Border Protection (CBP) Responding to the need for revenue following the American Revolutionary Way, the First United States Congress passed and President George Washington signed the Tariff Act of July 4, 1789, which authorized the collection of duties on imported goods. Four weeks later, on July 31st, the fifth act of Congress established the United States Customs Service and its ports of entry. In 2003, the United States Customs Service was re-commissioned to a subsidiary of the US Department of Homeland Security as the Bureau of Customs and Border Protection, Immigration and Customs Enforcement. US Customs Service has three major missions: (1.) collecting tariff revenue, (2.) protecting the U.S. economy from smuggling and illegal goods, and (3.) processing people and goods at ports of entry. Shipper’s Perspective 15

16. US Customs & Border Protection (CBP) • CBP has a workforce of over 58,000 employees including officers and agents, agriculture specialists, aircraft pilots, trade specialists, mission support staff and canine enforcement officers and agents • 1,000 Air and Marine Interdiction Agents prevent people, weapons, narcotics, and conveyances from illegal entry by air and water • 2,500 employees in revenue positions collecting >$30 billion annually in entry duties and taxes through the enforcement of trade and tariff laws; CBP collections are 2nd largest revenue source to US gov’t • Currently, US has 320+ officially designated ports of entry (POE) and an additional 14 pre-clearance locations in foreign countries • Responsible for container security through identifying and inspecting foreign cargo in its mother country before it is imported into US Shipper’s Perspective 16

17. US Customs & Border Protection • CBP is authorized to search inbound and outbound shipments. It uses targeting to carry out its mission. CBP is required to seize all merchandise that is stolen, smuggled or clandestinely imported into the United States. • Merchandise may be seized and forfeited if: • Import is prohibited or restricted by law • Importer does not have proper license or documentation • Imported goods are not properly packaged or labeled • Merchandise does not have proper country of origin markings • Merchandise is subject to quarantine • The Tariff Act is used for civil and criminal penalties for non-compliance in the importation of goods. It prescribes penalties against any person who imports, attempts to import, or procures merchandise by unlawful means. Penalty provisions include FRAUD, GROSS NEGLIGENCE and NEGLIGENCE. Shipper’s Perspective 17

18. US Harmonized Tariff Schedule (HTS) The HTS lists tariffs charged for all products imported into the US. HTS classifies goods according to the international harmonized commodity coding and classification system established / maintained by the World Customs Organization. Virtually all countries base their tariff schedules on this system, making it easier to conduct international trade. The HTS generally classifies goods based on their level of processing, with raw materials appearing first and highly processed goods last. Shipper’s Perspective 18

19. US Harmonized Tariff Schedule (HTS) Shipper’s Perspective 19

20. Tariff Application 00 Tariff Rates in Developed Markets for Timber Products Source: International Tropical Timber Organization Shipper’s Perspective 20

21. INternationalCOmmercial TERMS What are INCOTERMS? A series of pre-defined commercial terms published by the International Chamber of Commerce widely used in international commercial transactions. A series of three-letter trade terms related to common sales practices. The rules are intended to clearly communicate the tasks, costs and risks associated with the transportation and delivery of goods. Incoterm rules are accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce / remove uncertainties arising from different interpretation of the rules in different countries. Incoterms Handout Shipper’s Perspective 21

22. International Terms of Trade • Determine the seller’s and buyer’s obligations concerning responsibilities and charges for international transportation of goods from the seller’s premises to the buyer’s place • Objective is to avoid confusion and misunderstanding addressing the following questions: • Who is responsible for what? • Who is going to pay for what? • Where do responsibilities begin / end? • Who assumes the risk? Shipper’s Perspective 22

23. Buyer seeks to purchase container of 24” LCD monitors from a Taiwan supplier. The seller quotes a price of $225 US per monitor, FAS, Port of Kaoshiung, Incoterms 2010. What is seller responsible for? Packing the goods for export and loading the container All transportation costs of getting the monitors to the port Dropping the container at the port Clearing the goods for export Loading the container on the ship Paying for the ocean transport Paying for the insurance on the international voyage All costs related to unloading the container from the ship Clearing the goods through U.S. Customs All transportation costs of getting monitors from the port to the destination  Application of Incoterms

24. Another supplier in India offers a similar quality monitors. Seller quotes buyer a price of $240 US per monitor, CIF, Port of Savannah, Incoterms 2010. What is the seller responsible for? Packing the goods for export and loading the container All transportation costs of getting the monitors to the port Dropping the container at the port Clearing the goods for export Loading the container on the ship Paying for the ocean transport Paying for the insurance on the international voyage All costs related to unloading the container from the ship Clearing the goods through U.S. Customs All transportation costs of getting monitors from the port to the destination Application of Incoterms

25. Customs Documentation Why is customs documentation (or paperwork) important? • Customs Forms: invoice, bill of lading, certificate of origin, certificate of insurance, letter of credit • Documentation drives the entire export process • Documentation results in transfer of information in a timely fashion to ensure uninterrupted freight flow • Keys to success: • use the correct form • available in advance of shipment • accuracy is essential • impacts application of tariffs • errors create delays and costs Shipper’s Perspective 25

26. Customs Documentation Shipper’s Perspective 26

27. Documentation and Security • US Customs & Border Protection has established smart borders that increase security while facilitating the movement of legitimate trade • Regulation – 19 CFR Part 4 or “24 Hour Rule” • Ocean Vessel – present 24 hours prior to lading at a foreign port • Air / Courier – present 4 hours prior to arrival in US or at "wheels up" for the aircraft • Rail – present 2 hours prior to arrival at US entry port • Truck – present 1 hour prior to arrival in US or ½ hour for Free And Secure Trade or FAST participants Shipper’s Perspective 27

28. Ocean Freight Challenges Why is ocean freight protection an issue? There are numerous perils are created by longer distance travel, extensive product handling and different conditions. roll, pitch, yaw, surge, sway, heave Shipper’s Perspective 28

29. Handling / Stowage Problems Shipper’s Perspective 29

30. Pirates / Thieves on High Seas Areas of concern include the South China Seas, West Africa, South America (particularly Brazil), the coasts of the Arabian Peninsula, The Philippines, Indonesia, Somalia and, with the chaos in Albania, even parts of the Mediterranean. Over 200 crew have been assaulted, taken hostage or injured in attacks this year, and eight killed. The figures also show that pirates are more likely to be armed with guns than in previous years. Shipper’s Perspective 30

31. Fortuitous Losses at Sea Ship’s master (captain) has the absolute right to jettison cargo when he reasonably believes it to be necessary, and the owners of the ship incur no liability. Shipper’s Perspective 31

32. Fortuitous Losses on Land Shipper’s Perspective 32

33. Import / Export Management Challenges Shipper’s Perspective 33