Global sourcing for the cosmetics industry is more than a search for the lowest cost. It’s a long-term systemic trend that necessitates structuring supply chain logistics from the ground up. Designing a logistics system for cosmetics producers’ sourcing needs today requires a quantum leap from past shipping practices, which evolved during decades of relatively stable sourcing and supply trends. The logistics paradigm is constantly changing, and producers must integrate constant awareness of those changes into their product planning process.
Who tracks logistics?
There is too often a notable lack of communication within major manufacturers in all industries, including cosmetics, on concerns that relate to transportation. When a new product idea is conceptualized, researched and tested, the process involved is detailed and standardized. And when the point of commercializing a new product is reached, producers consider and evaluate the packaging, the marketing, distribution and sales, public relations and advertising. The wants and needs of a purchaser reflect age and income characteristics that the industry spends nearly $1 billion a year to research in the U.S. alone, according to marketing specialists Kline and Company. The necessity of tracking current and future consumer trends is accepted as a given.
But what about logistics? How much does the industry analyze the supply chain that is the foundation for nearly $300 billion in annual revenue worldwide? Too often, transportation and the logistics of the supply chain are taken into account late in the game—if they are considered at all. Yet failing to investigate and consider the details in vital logistics factors—for example, insurance coverage and security requirements—can dramatically increase supply difficulties and overall costs for any product, no matter how great its potential demand.
Insurance Fine Print
Fine print can cause big problems. For example, no globally sourced material can be shipped without a bill of lading, which shows where and from whom the goods were received, describes the shipment and defines the liability of the carrier. It is not unusual for carrier bill of lading agreements to be voluminous, containing myriad terms and conditions. Typically buried in these agreements are exoneration clauses, benefit of insurance clauses and limitation of liability clauses that, in effect, mean that the bill of lading does not adequately cover insurance, as most people assume. That’s particularly true if the goods are shipped using CIF (cost-insurance-freight) international commercial terms, where the seller arranges and pays for carriage without assuming its risk.
Here is an example of how insurance coverage is limited: For U.S. importers, the Carriage of Goods by Sea Act (COGSA) governs the rights and responsibilities between shippers of cargo and ship operators regarding ocean shipments to and from the United States. COGSA sets the amount that ship owners must pay cargo owners for damage in transit at $500 per package or, for goods not shipped in packages, per customary freight unit. This “package limitation” has spawned much cargo damage litigation, because when the COGSA was enacted, most cargo was shipped in boxes, crates and bags. Today, most shipments are made in ocean shipping containers up to 45 feet long, supplied by the carrier. Such containers can hold huge amounts of components or goods valued at many hundreds of thousands or even several million dollars—yet carriers often contend that one container is a “package” with a $500 insurance limitation.
Freight Forwarder Help
To get adequate insurance coverage, importers must provide instructions to their freight forwarder. As we’ve written previously, this is possible by using free on board (FOB) incoterms, in which the importer takes control of the goods as they go onboard at the overseas port of shipment—control that includes shipping terms and insurance coverage. Choosing your own freight forwarder to handle the importing details makes FOB easy. Global forwarders have the IT systems, standardized operations and relationships with key international shippers to smooth the logistics process. 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 nontraditional way that adds value.
The Customs Conundrum
Customs duties represent another concern that unwary companies fail to include in their global sourcing. For example, the U.S. Customs and Border Protection agency (CBP) is squarely in the middle of a new regulatory requirement that stands to increase costs for importers. The SAFE Ports Act of 2006 directed the CBP to gather data about shipments imported to the U.S. that will allow the agency to better evaluate terrorism and security risks. The CBP is now finalizing rules for an Importer Security Filing (ISF) that requires importers to submit additional security-related information on their shipments at least 24 hours before the goods are loaded on board an ocean vessel. This ISF is in addition to the current 24-hour Rule requirement to provide the CBP with shipping manifest data in advance of cargo arrival.
The ISF will fundamentally alter both the timeline and manner in which import related information is provided to the CBP. As plans currently stand, the required filing must be made electronically and include 10 categories of detailed identification regarding the manufacturer, shipper, consolidator and importer, as well as information on the shipping container stuffing location and various shipment identification numbers. This information must be provided as individual line items, so that shipments that contain merchandise subject to multiple classifications will require multiple ISF submissions. In addition, the carrier must provide the CBP with two other items: a cargo stowage plan for the vessel and container status messages. The ISF requirement is being referred to as the “10+2” rule.
The party who makes the ISF will be responsible for the timeliness and correctness of the transmission, and must make every effort to update the filing if there is any change in the data while the merchandise is in transit to the United States. Although some of the required data elements can be obtained from existing purchase order systems, most companies will be required to coordinate information from several different sources to satisfy the ISF requirements. It is not certain when the ISF requirements will be final, but it is clear that they will require importers to make major changes in how they gather and report information about their shipments. Such considerations will make partnership with a technologically sophisticated freight forwarding specialist even more necessary.
Flexibility and Foresight
This discussion certainly doesn’t encompass all the key considerations that cosmetics companies should consider in designing their supply chains, but it does indicate that flexibility and foresight are essential to keep logistics problems from occurring in today’s rapidly changing logistics landscape. Problems are inevitable for the unprepared or unsophisticated company that hasn’t made supply chain design a priority. A well constructed supply chain is no accident. It requires planning and analysis that encompasses all customer interactions (from order entry through paid invoice), all product transactions, all regulatory requirements and all market interactions for the final fulfillment of each order.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]; www.jaguarfreight.com; 1-516-239-1900