Supply Chain: Finding Safe Harbor in the World’s Ports

As manufacturers of cosmetics expand their global sourcing, the role of port facilities is central. Most ports today compete globally with one another, and reflect tremendous gains in productivity in ocean transport achieved over the past several decades. Importers of cosmetic ingredients, raw materials and finished products—like all importers—seek improved port efficiency, lower cargo handling costs and port services that are integrated parts of the global distribution network. Many ports are responding with specialized tracking and handling capabilities that add value to cargo throughput.

Consider, as an example, the ports of East Asia, through which much shipping passes. In China, the port of Shanghai ranks first globally in cargo throughput, and its facilities, which have been expanded substantially in recent years, have direct routes to more than 20 other global ports. At Ningbo, another vital Chinese port location, the government is investing billions of dollars in more than 40 port transportation facility projects. Other competing port locations are investing, too. In Malaysia, the major facilities at Port Klang, Penang Port and Port of Tanjung Polepes have advanced facilities—including electronic data interchange (EDI) systems and ample handling capacity. In Singapore, port and cargo handling facilities are modern and include advanced EDI systems, and the port authority has continually invested in expanding the port-handling capacity to cope with future demand.

For the global cosmetic industry, then, the quality of the physical elements in a world class port can virtually be considered a given. Far more important in terms of achieving sourcing efficiency are two strategic elements inseparable from quality port operations: properly selected freight forwarders and properly selected shipping terms.

The Freight Forwarder’s Role

Cosmetics producers should use freight forwarders as the vanguard of new technological advance and cutting-edge supply chain methodology. Their services can be customized for use by both the smallest and largest businesses and corporations. Freight forwarders can often find creative solutions where traditional supply chain handlers see obstacles. When it comes to challenges such as refrigeration, throughput, theft, customs and other regulations, and product tracking, freight forwarders consistently solve problems in a non-traditional way that adds value.

A professional logistics company represents the interests of the full range of cargo and supply chain nodes. In addition to having a vested interest in the ups and downs of an entire region, freight forwarders have another ace in the hole: the government agencies responsible for customs clearance and other regulatory issues are much more sympathetic to the goals and aims of such a broadly-backed organization. Foreign supply chain networks should not be constructed without relying on seasoned guides who know how to improve throughput, navigate problems and deal with the governments and ports.

In foreign countries where sourcing cannot be assured of the due process of law, such as China, it is vital to collect data and keep track of all freight in a way that creates a provable and thorough paper trail. Crime, loss, bureaucracy and corruption must all be taken into account. Electronic tracking from a reliable freight forwarder is often the only way to overcome such roadblocks. Developing personal relationships are essential to understanding foreign business culture, and to cementing agreements between partners, who may or may not speak the same language. By taking advantage of established freight-forwarding agents in the region, a company can increase its ability to get results and track its goods effectively.

The Role of Shipping Terms

Using an established freight forwarder, working through efficient port facilities, generates another benefit when shipping terms are properly structured. Before the wide use of online technology, trading terms were limited generally to cost/insurance/freight (CIF) charges. In CIF terms, the shipper chooses the freight company and includes all insurance and freight charges in the shipping price. This makes verification of the charges for freight and insurance difficult, particularly as companies increase their number of overseas suppliers and overall freight volume. The greater the number of CIF shipments, the more problems can occur with obtaining accurate shipment information.

Importers may think that having their supplier arrange and pay for the main carriage is more convenient, but they generally wind up paying more when the supplier chooses the freight company. Sometimes the supplier does not have the vested interest or the leverage to get the best freight price. Other suppliers may build a higher rate into shipping terms to cover insurance costs, currency fluctuations or delays from bad weather. The result of these and related factors mean that shippers may build substantial additional freight charges into its rates, which are often not itemized for the importer. The United Nations, through its Centre for the Trade Facilitation and Electronic Business, has identified more than 200 additional freight charges that may legitimately be added to the importer’s costs.

In contrast, shipping Free On Board (FOB) offers more competitive freight rates and enhanced shipment control. FOB integrates perfectly with electronic tracking because increased supply chain visibility and control are critical FOB benefits—created because the importer, not the supplier, selects the logistics company. By taking title to the goods as they go onboard at the overseas port of shipment, the importing company is better able to obtain accurate and timely shipment information by working with the freight forwarder that it chooses. In this way, the importer is assured the freight partner is working for it, not the local supplier.

Moreover, the INCOTERMS (INternational Commercial TERMS) under which FOB shipments operate do not deal with the transfer of ownership, when transfer of title in goods takes place or other terms necessary for a complete contract of sale. The issue of the transfer of title remains subject to what has been agreed upon between the parties in the relevant sale contract and applicable law. In the contract terms, cosmetics manufacturers, particularly ones with high volume importing clout, can arrange to take title to the goods shipped only after arrival in port—offering significant accounting advantages relating to how inventory is reported. The sales contract can provide for supplier invoicing upon confirmed arrival at destination port, and tracking will be made available to the supplier on-line and via e-mail notification. An online tracking system is a huge advantage in making such cost-efficient arrangements work.

The Essential Ingredient

For cosmetic companies that source globally, selecting a first class freight forwarder that has local knowledge and will represent its clients’ interests under FOB shipping terms is the essential ingredient to successful importing through ports anywhere in the world. It facilitates the movement of products around the globe—quickly, cleanly and without loss. Understanding the unique challenges of local sourcing markets, using modern tracking methods and shipping terms to ensure accurate and efficient product flow, and having a direct local presence through a freight forwarder of choice gives companies a far better chance of creating a supply chain with a minimal amount of inefficiency and maximum amount of flexibility—no matter how far-flung are the ports that it uses.

Simon Kaye is founder and CEO of Jaguar Freight Services, with operations and fully integrated door-to-door freight solution networks in Europe, North America, South America, Australasia, Asia, the Middle East and Africa. E-mail: [email protected];; 1-516-239-1900

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