International logistics (IM 23 Dec 2020)

International logistics

Logistics of distribution is an aspect of distribution decision. It involves the consideration of cost of transportation and warehousing of products during the course of exportation. Transportation and warehousing should be considered well in advance even at the time of selection of export markets. The distribution system has to perform two basic functions (i) to generate demand for the product and (ii) to make sure that the demand so created is matched by adequate and timely supply. Along with all other members of the channel the exporter should perform the dual functions. To achieve this objective, he will require a logistics plan by considering the following points:

 

(i) Alternative modes of transport. What are the alternative modes of transport viz. rail, road or ship available for transporting the goods from the point of production to the point of consumption?

(ii) Optimal mode. Which mode is optimal from the point of view of the distribution costs?

(iii) Warehousing. Is there any need for warehousing arrangements keeping in view the product and the marketing characteristics?

 

International logistics is the process of planning and managing the flow of goods and products in your company's supply chain from acquisition to customer purchase, where part of the process involves crossing at least one international border.

The foundation of logistics function is based mainly on Transportation by Road, Rail, and Air & Sea.

Maritime trade has existed since times immemorial. History is replete with the major maritime routes that connected continents across the globe and enabled trade between them. Harbors and waterways have flourished in strategic locations in all countries attracting trade and commerce.

Global trade is dependent 80% on sea route than air route, simply for the fact that air route is far more expensive and is used only in case of light weight cargo, perishable cargo, and priority shipments or in other conditions where shipping would not be possible.

Shipping trade is characterized by shipping companies who own vessels and specialize in the transportation of certain types of cargo like General Cargo, Containerized cargo, bulk commodities carriers, oil tankers, gas tankers, OD cargo carriers, etc. Normally the so-called mother vessels ply on the main shipping route across the continents traveling through Pacific or Atlantic oceans and calling on countries from point to point. Mother vessels are bigger vessels with higher cargo carrying capacity. Some of the main routes normally traversed by mother vessels are the Far East to Europe and Mediterranean, Europe to America East Coast and the Gulf of Mexico, Far East Australia to South Africa, Intra Asia, Asia to the Middle East, and Europe to South Africa, etc. The schedules in detail are announced in advance for each of the vessels. The feeder vessels carry cargo from individual ports in nearby countries which discharge the cargo at the port of calling to be transshipped on to the main vessel.

Thus for example, a cargo originating in India bound for South Africa may follow the route where cargo reaches one of the ports in Ceylon or Dubai even Singapore in some cases and travels right up to Europe where in is further transshipped on another vessel bound to South Africa. Likewise, the global shipping trade lanes have certain gateways and lanes which they operate and in turn are fed and supported by feeder lanes and vessels.

Shipping liner announces schedules of the vessels a few months in advance. Freight forwarding agents book space on the vessels either based on estimates or based on their pipeline orders. Depending upon the volume that the forwarder is able to give and patronize shipping lines, they get to bargain and negotiate for better rates. In general cargo, the shipments are made in FCL Containers. FCL stands for Full Container Load. FCLs come in two sizes called 20 feet and 40 feet containers which refers to the length of the container. Each container has fixed dimension and weight carrying capacity. FCL Containers are provided by shipping lines to the freight forwarders who stuff the cargo and get the cargo sealed after customs inspection which is then picked up and loaded on the ship at the port.

 

Some of the major international shipping lines dominated world shipping trade is P&A, Nedlloyd, Maersk, Hapag Lloyd, American President Lines, Evergreen, NYK, HanJin, Cosco, CSCL etc.

 

What is the Importance of Logistics in Global Trade?

The success of any business or economy of the country in global markets is also depending on the importance of trade logistics solutions.

 

1. Generation of Demand

The demand of any product is improved significantly from increased mobility, unobstructed movement of products & services and access to better logistics infrastructure. This is because enhanced trade and logistics infrastructure create place, time and form utilities for the customers & users. Both customers and users can be serviced at any time and at any place. Thus, improved international logistics infrastructure helps in increasing the overall sales of the company’s products.

 

2. Cost Reduction in Doing Business

Improved logistical infrastructure helps in keeping cost of business at the lower side as transportation of products from one place to another becomes almost uninterrupted due to better ports, railway network, roads and civil aviation infrastructure.

For example, Due to better road connectivity in China, a truck can travel 1,300 km into this country in about 74 hours. And the same distance, which is equivalent to distance between Delhi-Kolkata, is covered in about 144 hours in India. This delay not only extends trade cycle, but the quality of certain goods gets poor and fetches lower prices in markets.

 

3. Tapping Clients in the World

Improved global logistics services from top logistics companies and better transportation are important for the movement of goods and services from one region to another. This helps companies to have a tap on the customers in every nook and corner of the world.

For example, Indian industry has many potential fields such as electronics, engineering, chip designing, auto components, etc. It can contribute to the world’s markets only if the country has improved trade logistics infrastructure and networking systems; otherwise, the business opportunities can be outpaced by the nation’s rivals from other developed countries.

Hence, any country needs to have quality logistics infrastructure to tap clients all over the world.  

 

4. Ensuring Rapid Economic Growth

In the development process of any country, growth in the economy plays a vital role. This is possible from the expansion in trade & logistics infrastructure that create demand in economic system for products such as iron & steel, cement and manpower.

For example, India has to make its logistical infrastructure better, which will not only grow its economy but also help its companies to accomplish a sustained superior performance in international markets through enhanced trade supply chain process.

 

5. Bridging Gap between Demand and Supply

How to bridge gaps between demand and supply of a product? This is one of the major challenges that any company faces in international markets at all levels from sourcing of raw materials to work in progress to distribution to customers. So, better transporting goods from one place to another and timely supply of products to meet the demand will fill the gap between demand and supply of a product.

For example, China with main economic clusters on the east coast results to transporting commodities at far-away regions in the western and remote northern parts of the country. This creates the problem of demand and supply in the country’s economic system. Better connectivity from road, rail network, airstrips and sea help companies to distribute their resources between places where there are abundant resources and where there is scare.  

 

6. Strategic Infrastructure for Global Integration

Trade logistic infrastructure and transportation play an important role in conditions that affect regional, national and international economic entities of companies in accessing global markets.

For example, Nepali carpet exporters transport their goods towards the Nepal border by trucks that are unloaded for customs clearance at Birgunj in India. The products are again loaded on Indian trucks to move towards Kolkata by road transport. The shipment is then unloaded again for loading on ship and transshipped to Singapore.

 

7. Ensuring Critical Supplies on Time

An efficient logistics system in international trade operations helps companies in making timely supply of products to their international buyers. Due to complex functionality of logistic system and long distance involved between two countries, the problem of safety, care and timing of shipment often cause nightmares to suppliers, particularly in case of perishable & high value products and goods with expiry date restrictions. Such products include newspapers, flowers and marine products.

Value Chain Concept in International Marketing

"Value chains are an integral part of strategic planning for many businesses today. A value chain refers to the full lifecycle of a product or process, including material sourcing, production, consumption and disposal/recycling processes.”

 

 A value chain describes the full range of activities that firms and employees carry out to bring a product from its conception to its end use and after sales service. The value chain consists of activities like design, production, marketing, distribution and after sales service support to the customers. Value chain framework shows how goods and services are produced, within a single geographical location or spread over globally (Porter, 1985).

In a global capitalism, economic activities have distinguished scope as international and global. Internationalization refers to geographic spread of economic activities across the national boundaries. On the other hand, globalization is much recent process of economic activities as compared to internalization. It is concerned with the spread of economic activities internationally (Gereffi,1994a). Through such global processes developed countries like U.S. are connecting with developing countries like China, India, Mexico and others (Global Trading, Foreign Direct Investment, Diffusion of Western Lifestyle). Technological development is a very important factor influencing economy rapidly through different channels. Further to distinguish Globalization and Internationalization.

Gereffi has emphasized on three different level of global economic activities as –

1. Macro concerned with the study of international organizations, for example World Bank, NAFTA etc;

2. Meso level deals with national economies or firms inter relationships (Institutional and Organizational approach),

3. Micro level focus on impact of globalization on individuals and local communities (Bottom Approach). (Gereffi, 2005)

 

Global Value-added chain has been significant tool to make effective strategies for firms as well as countries in the global economy. Bruce Kogut (1984) was one of the Business Analyst who argued in this regard. According to him, Value Chain is essential in the new framework of competitive analysis which is needed due to Globalization of world market. Furthermore, to elaborate the meaning in brief Kogut explains the value chain as the process in which technology is combined with production inputs like material & labour, and then those inputs are assembled, marketed and distributed in the market place.

Another business analyst, Michael Porter (1985) from Harvard Business School developed a value chain framework which was applicable to level of individual firm (Porter, 1985) and also provided the base for determining the competitive advantage of nations (Porter 1990). Accordingly, at the firm level, value chains refer to a collection of different activities applied to do business which refers to manufacturing of product or service, marketing, delivery to the buyer and after sales service. In brief value chain consists of large stream of activities. Porter says that a value system includes the separate value chains of suppliers, distributors and retailers an organization can achieve two competitive advantage through value chain: Product Differentiation and low cost (Porter 1990).

 

 

The Benefits of Value Chain Management

Value chain management brings numerous benefits, including an improved flow of materials and products, the seamless flow of information, and the enhanced flow of finances.

 

1. The Improved Flow of Materials and Products

The time it takes for a product to get to the consumer is a key indicator of the efficiency with which the product flows. The faster the product gets to the end-consumer, the more efficient is the flow of the product. There are also other factors to be considered, such as the quality of materials and products that eventually get to the consumer, the balance of supply and demand, the costs involved, and so on. When value chain management is implemented effectively, the flow of products and materials is improved through the accurate forecasting of sales and demand as well as improved inventory management. Delays are also minimized and products are visible and traceable throughout the supply chain.

 

2. The Seamless Flow of Information

Customers are constantly demanding a response in real time as well as easy access to content concerning products and other aspects of the supply chain. The flow of information in such an environment should never be interrupted. When information is either intermittent or insufficient, the relationships between customers and suppliers become strained.

When value chain management is effectively implemented, the bottlenecks to the flow of information are removed. The quality of information is evaluated and solutions are implemented to fill information gaps.

 

3. The Enhanced Flow of Finances

Supply chain management isn’t only about improving the flow of products; it is also about improving the flow of cash. The typical supply chain will involve thousands, if not tens of thousands of payments and invoices annually. With cash inflows and outflows being variable and unpredictable, the situation is made even more complex.

Value chain management helps companies deal with the challenges associated with financial flow by enabling them to assess their current processes, look for weak links that hamper the processes, and figure out solutions to the problem.

With the help of value chain management, companies can optimize the flow of information, products, and finances. They can use these enhanced methods to identify new market opportunities and to take advantage of them, as well as to reduce the risks that threaten their businesses. With effective value chain management via an ongoing process, companies can evaluate their processes and fill in any necessary gaps. They can evolve with the market.

 

Why is the Value Chain important?

Value chain analysis is often called the value chain management since it encompasses the monitoring and control of all the underlying activities to create a competitive advantage. As such, we can gain lots of benefits from it.

 

Some of the benefits of effective value chain management are:

1. Better product-planning, research & development by creating cross-platform teams;

2. Standardization of processes by measuring the metrics of the business;

3. Reduction in cost by optimizing the value chain components or activities;

4. Improved flow of materials and products through accurate forecasting of sales as well as demands;

 

Improvement in after-sales services and customer support through coordinated operations.

 

 

 

 

 

Communication Decisions for International Markets

The steps those are involved in Emergent of an International Communication Strategy are as follows:

International communication is a fundamental activity in an international company’s marketing mix. Once a product or service is developed to meet consumer needs and is properly priced and distributed, the intended consumers must be informed of the product’s availability and value.

International communication consists of those activities which are used by the marketer to inform and persuade the consumer to buy. A well-designed promotion mix includes advertising, sales promotions, personal selling, and public relations which are mutually reinforcing and focused on a common objective.

 

Developing an international communication strategy involves five steps:

1. Determining the promotional mix (the blend of advertising, personal selling, and sales promotions) by national markets.

2. Determining the extent of worldwide standardization.

3. Developing the most effective message(s).

4. Selecting effective media.

5. Establishing the necessary controls to assist in achieving worldwide marketing objectives.

 

Communication is the side of international marketing with the greatest similarities throughout the world. Paradoxically, it may also have the distinction of involving the greatest number of unique culturally related problems. Adapting promotional strategy to cultural peculiarities which exist among the world’s markets is the challenge confronting the international market.

Advertising is usually the most visible component of communication, but it is not the only component of communication. To communicate with and influence customers, several promotional tools are available. Marketers have at their disposal the major methods of promotion i.e. advertising, sales promotion, publicity, pubic relation, personal selling and word of mouth.

Taken together these comprise the promotion mix. But in the present scenario, the promotional tools have widened their scope and number of types. There are many other promotional tools also which are considered under the promotion mix such as e- commerce/internet marketing, sponsorship, exhibitions, packaging, point-of-purchase displays, corporate communications/ identity, event marketing, trade shows, and customer service.

When these tools are integrated in a harmonious manner to reach and exceed the promotion objective, the outcome is called Integrated Marketing Communication (IMC). IMC has been adopted as the best possible way to promote one’s offering according to the situation. The major elements of promotion mix/communication mix are as follows:

 

 

 

Causes of Need of Warehousing

 

1. Seasonability. Some commodities mainly agro-based products are produced in a particular season whereas they are sold throughout the year. These require warehousing.

 

2. Demand variation. Where demand is experienced in a particular season e.g., demand for sugar during festival period the stock is maintained to meet such additional demand over a period of time.

 

3. Speculation. A company which tends to maintain a large inventory of items whose prices fluctuate due to speculative tendencies requires warehousing.

 

4. Product conditioning. Warehousing is required for some products which are stored in order to attain the required level of quality, for example rice are stored to add something to its quality.

 

Reasons for Warehousing in Export Marketing

 

1. Break bulk operations. These include those operations wherein the exporter ships in goods in bulk and then repacks them into small consignments according to the orders received from individual customers. This system is economical in export operation especially when individual orders are so small that they do not fulfil the minimum space stipulation of shipping line. Even if minimum exporter has to pay minimum freight.

 

2. Reassembly operations. Reassembly operations are required especially for engineering goods and also for many other items. Many items are exported in CKD (Completely Knocked Down) condition in order to save shipping space. Some countries insist that the goods must be imported in CKD condition. For CKD shipment the warehousing facility will be required by the exporter in importing country where goods can be reassembled.

 

3. Timely supply. In Western Europe and the U.S.A. most distributors and other companies maintain low level of inventory. They expect that deliveries whenever required would be made at a very short notice. It is necessary to store products in such countries in order to compete these firms and to make timely supply at a very short notice. This is particularly true in case of spare parts of engineering products.

 

4. To meet quota requirements. Some countries impose quota limitation on global basis on the import of certain selected products such basis. In order to meet the quota requirement of the importing country, it is necessary for the exporter to consign the goods well within time. One common strategy to beat the quota regulations is that goods are consigned in such a way that they reach the importing country well before the opening of quota i.e., beginning of fiscal year and by that time the goods are kept in bonded warehouse.

 

5. Tariff quota. Under this system, imports upto a certain predetermined limit are allowed duty free or at a very low rate of duty. This system is used in the generalized system of preferences operated by EEC and Japan. To take advantage on this lower rate of duty, some importers in these countries prefer to place order with those suppliers who are able to honour the delivery schedule just at the beginning of the quota period. Warehousing is necessary to make the deliveries duty free to importers according to delivery schedule.

 

6. Supply of spares and after sale service. The importers of some sophisticated engineering goods insist on timely supply of spares and other types of after sale services. It is a precondition for the success of an exporter in a foreign market to make sure of the timely availability of spare parts of goods imported. A large plant may be completely out of operation for want of a single spare part. Therefore, an exporter warehouses a sufficient stock of spare parts.

 

Costs of Warehousing

As the maintenance of warehouse in international marketing, is important and imperative in certain circumstances, the exporter must think over its cost. The exporter should make the use of warehousing facilities on a selective basis as warehousing involves additional costs which make the product in competitive in foreign markets. The cost involved in warehousing can be classified under the following three heads :

 

(i) Cost for space. As an alternative to arrange for ware housing jace a firm may decide to set up its own warehousing facilities abroad. In this case, there will be fixed costs that is, investment in creating warehousing facilities. Another alternative is the national rent for the space i.e., the amount which can be fetched if the space is let out to some other persons. One has to book the warehousing firms. Such firms sparge rent on the basis of the value of goods warehoused.

 

(ii) Handling and other incidental charges. A number of handling operations are involved as and when the sales materialize such as the goods have to be off loaded from the ship, transported to the warehouse, stored, and finally disposed off to the users. Several documents required for these handling operations also involve costs which should also be borne in mind.

 

(iii) Cost of inventory handling. The goods are exported on the consignment basis for the purpose of warehousing. The capital remains blocked until the goods are sold. If the turnover rate s slow and the rate of interest is high, the cost of inventory holding may be quite significant. Thus, cost of inventory holding should be borne in mind. If goods are exported on letter of credit basis there is no question of cost of inventory holding because the exporter gets immediate payment and no capital is blocked.

 

To conclude, physical distribution of goods involves two important costs : transportation cost and warehousing cost. As these costs form a substantial part of the total costs, the management should make an endeavor to pull down these costs to the minimum level. These should be managed effectively by the exporter so that his product may be competitive in foreign markets.